UK pension fund returns at five-year low

Real rates of return of UK pension funds in 2007 fell to the lowest level for five years, according to a report by International Financial Services London (IFSL).

Return levels fell from 7% in 2006 to 3% last year and an average return of 13% in the three previous years as global equity markets suffered from the fallout of the US sub-prime mortgage crisis.

Meanwhile, the total value of pension assets managed globally reached a $26trn (£13trn) high in 2006 after rising 14% thanks to strong equity market growth, says Duncan Mackenzie, director of economics at IFSL.

The report shows public pension and sovereign wealth funds stand at a total of $5.6trn. OECD countries, particularly the US, Japan, Norway and Sweden have set aside more than $4bn to finance future payouts on pay-as-you-go pensions.

Oil states and other emerging economies have built up sovereign wealth funds of $1.5bn and used the proceeds to invest in major western companies.

The report also shows $2.9trn of pension fund assets in the UK make up 11% of total assets worldwide, second to US assets which stand at $16trn and make up 61% of the world’s total.

Two thirds of global assets, $17.5trn, invest in occupational pension funds, which rose 14% from 2005 to 2006. Around $3.4trn is in pension insurance contracts (up 9%) and $5trn in other retirement products, such as personal pensions, which grew by 15%.

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