This modern concept of a pension fund being seen as a basket of present and future liabilities is bunkum. It is a basket of assets which should be managed in a sensible manner with a background view to the liability.
Most funds can take a long-term view and this demands a good dose of equities. Equities represent enterprise and economic growth – just the ingredients demanded for pensions. To concentrate on fixed-interest bonds is daft, especially when interest rates have been derisory.
Trustees – do your duty and invest in a wide range of underlying components to optimise returns from normal conditions and manage risk, which a portfolio dominated by fixed-interest securities does not do.
Proprietary companies remain responsible for scheme liabilities. They also benefit from surplus returns. A sensible investment policy limits employer contributions, optimising profitability. The better the returns, the lower the deficit or higher the surplus and the lower the employer contribution. Simple.
Are not regulation, trustees and actuaries pathetic if they perceive that the worst three years for equity markets for 70 years are considered a projection of normality into the future? The case for equity investment is very strong indeed – at least in cheap markets such as the UK. Actuaries, get a life. Your noses are too close to the paper.
Philip Milton Barnstaple, Devon