An actuarial analysis has found little correlation between funding levels of company pension schemes and the level of equity investment.
Consultancy Watson Wyatt analysed the schemes of companies in the FTSE 350 index and found only a weak correlation between high funding levels and the amount put into riskier investments.
Watson Wyatt says it might have been assumed that companies with above-average levels of equity investment would be those with strong funding positions but this is not the case. This may be because schemes with poor funding levels feel they need to gamble on a continued upturn in markets to restore funding to a satisfactory level.
The study also found little correlation between equity investment and the maturity of the scheme or strength of the sponsoring employer's covenant.
Partner John Ball says: “The management of pensions risk is now high on the agenda at many of the UK's biggest companies. However, our research shows that companies have very different levels of tolerance and are taking varying approaches to the management of that risk. This suggests that they are not adopting a consistent approach to the issue of pension scheme risk management.”