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Major scheme failure &#39only a matter of time&#39

The former head of the Boots pension fund has warned that it is only a matter of time before a major company goes insolvent, leaving tens of thousands of occupational scheme members facing serious shortfalls.

Former Boots head of corporate finance John Ralfe says the Government has escaped criticism for allowing underfunded wind-ups because so far they have affected only small schemes. But he believes it will face a public backlash when a big scheme goes under.

Speaking at the Cityforum Pensions in Crisis conference in London last week, Ralfe warned that a surge in wind-ups of final-salary schemes with shortfalls could prompt a wave of law suits against trustees and the actuaries who advised them.

Ralfe, who famously moved the entire £2.3bn Boots pension fund into AAA-rated long-dated sterling bonds in 2001 when the FTSE was at around 6,000, said the cult of the equity is over and occupational pension funds are wrong to hold over 70 per cent in equities.

He said switching out of equities cut the annual costs of the Boots fund to £300,000 from £10m, most of which went to fund managers. Ralfe said: “The Boots move was not about us guessing the market but getting risk off the balance sheet. It is possible that a major UK company will go bust with tens of thousands of members.”

But Aberdeen Asset Management fund manager Michael Karagianis warned that funds should generally be wary of investing in a single asset class. He said: “We had a bond bubble in the early 1990s and that burst in 1994. We do not know what asset class is going to outperform but if everyone rushes into bonds it will be the next bubble.”

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