UK – The chairman of the National Association of Pension Funds, Terry Faulkner, says he wouldn’t be surprised to see UK pension funds shifting to bonds over time.

“I wouldn’t be surprised to see a trend away from equities to bonds over time,” Terry Faulkner said in an interview.
He was unable to specify the timeframe for the move, though timing was not right at the moment, he said.

He also added that it was too early to comment on the forthcoming UK Pension Bill, as it has yet to go through the upper chamber of Parliament, the House of Lords. The NAPF, he said, was going through the bill “clause by clause."

Faulkner explained that the NAPF did have some problems with the proposed Pension Protection Fund, however. There was a “governance issue” over the power of the chairman of the fund, Faulkner said, adding: “The PPF should be transparent and Higgs compliant.”

He said the NAPF does not yet know the details of how the levy is going to be funded. The association was briefing all the members of the committee overseeing the PPF.

Commenting on a recent demonstration by UK workers who had lost their pensions when companies when bankrupt, Faulkner said the government should do something to help them – though not from a levy on current schemes. He said any compensation should come from general government revenues. He added: “Most companies don’t go bust with an underfunded pension scheme.”

Faulkner also saw a future for derivatives for pension funds. He said swaps were “going to be pretty important for pension funds going forward”. “You will have to use derivates of some kind.”

Asked about the complexity of such instruments, he said trustees just needed to understand what is involved in the decision itself.

“In the old days actuaries and consultants used to be gods,” Faulkner said. Now, he said, the “veil of secrecy” had been lifted.

Faulkner also agreed with Cable & Wireless chairman Richard Lapthorne, who earlier criticised the FRS17 accounting standard in a speech to the conference. Lapthorne was “absolutely right”. But he said “you have to have some way of measuring - it’s not a valuation of a pension scheme”. The introduction of FRS17, at the time of rising deficits and lower markets was “just a piece of bad timing”.