Estimates released by BNY Mellon Asset Servicing today show that the average pension fund achieved an estimated return of 6.8% for the year ending 31 December 2007. This is the fifth consecutive calendar year of positive investment performance for UK pension funds, after the slump at the beginning of the decade.
Over three years to 31 December 2007, pension funds achieved an estimated weighted average return of 11.4% p.a. Funds outpaced inflation during this period, and achieved an estimated real rate of return of 7.9% p.a. against the retail prices index (RPI). Real returns were even better over a five year period when pension funds returned 12.1%pa, outperforming inflation by 8.8% p.a.
Over 10 years to 31 December 2007, pension funds achieved an estimated weighted average return of 6.7% p.a. This represents a real rate of return, as measured against the RPI of 3.9% p.a.
There were some strong performances in the equity markets, particularly in Emerging Market (37.0%) and Pacific ex Japan Equities (34.2%) . Canadian and Europe ex UK Equities also achieved double digit returns of 28.8% and 15.3% respectively. The only equity sector which failed to achieve a positive return over the year was Japanese Equities, which returned -6.5%. UK Equities, which remains the single biggest asset class for pension fund investment, returned 5.3% over the year.
Property struggled during 2007, returning an estimated -2.6%. The last time we saw a negative yearly return for this sector was 1992. By contrast, both Cash and UK Bonds provided positive returns of 5.6% and 5.3% respectively. However, all were outperformed by UK Index Linked Gilts which provided the highest non equity return of 8.5%.
Commenting on the results, Alan Wilcock, BNY Mellon Asset Servicing’ Performance and Risk Analytics Manager, said: “Despite the market volatility and the turnaround in the Property market during 2007, pension funds ended the year with a positive result, adding to the good returns earned in prior years, producing healthy returns over the last five year period.”