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28 Jun 2012

UK Mid-Market Pension Schemes Show

During the coming one to three years, a significant increase is expected in the number of medium-sized pension schemes in the UK that shift their focus towards Liability Driven Investment (LDI) strategies and away from investment in stocks, human resource solutions company Aon Hewitt said in a survey published on Monday.

The Aon Hewitt Mid-Market Survey focused on the asset and LDI strategies that are already being applied or just put to consideration by defined benefit pension schemes worth between £10m and £500m, which account for more than 60% of UK pension schemes.

According to the results of the survey, more medium-sized schemes are interested in investment strategies designed to match their liabilities as schemes look to de-risk their assets in view of the economic turbulence. While in the past only the biggest and most sophisticated pension schemes could take advantage of LDI strategies, specialist managers' innovation in product offering has made it possible for smaller investors to access such solutions at a lower fee and supply has increased in order to meet growing demand.

The survey showed that two in five medium-sized UK pension schemes plan to boost allocations to tailor-made LDI strategies by using LDI funds. The results also showed that 59% of medium-sized pension schemes expect a further decline in investment allocations to UK stocks, while almost 45% plan to lower allocations to global stocks. In addition, 39% of schemes showed an interest in boosting allocations to diversified growth funds or funds with a more dynamic capability, while more schemes are interested in boosting allocations to corporate bonds than to government bonds.

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