UK - Total assets in pension schemes administered by trustees or investment managers fell £165bn (€187.4bn) in 2008 to £928bn, according to the Office of National Statistics (ONS).

An updated chapter nine of the ONS’ Pension Trends series said self-administered pension funds account for 70% of the total occupational pension provision in the UK, mainly on a defined benefit (DB) basis, with the remainder comprising of insured schemes.

Figures from the research showed that from 1985 to 2006, annual income for self-administered pension funds - employer and employee contributions, income from rents, interest and dividends - averaged around 7% a year as it increased from £17.8bn to £71.8bn.

However, total income fell in 2007 to £62.8bn and income fell even further in 2008 to £58.6bn. This is the biggest fall recorded by ONS, and it attributes this not only to lower investment returns but also to a drop in the value of employer and employee contributions.

The report noted that between 1999 and 2006 total contributions to these schemes increased as employers attempted to rebuild finances, following disappointing investment returns and increased longevity. However, contributions slipped to £38.7bn in 2007, reflecting the relatively strong funding position of schemes in that year.

By 2008, the total contributions slipped even further to £34.3bn, as employee contributions fell from £6bn in 2006 to £5.9bn in 2008, and active membership declined in DB schemes. While employer contributions reached a high of more than £21bn in 2006-08, special contributions made to reduce deficits and meet additional costs dropped from £11.9bn in 2007 to just £6.8bn a year later.

The report suggested the recession was a significant factor in the £165bn fall in total assets. The ONS revealed stock market growth had helped increase the value of the assets from £620.4bn in 2002 - just after the last stock market crash - to £1.093trn in 2007. But as stock markets fell in 2008, the total value of pension fund assets dropped to £927.7bn.

A breakdown of the average asset allocation of self-administered funds at the end of 2008 showed 90% of total assets were invested in long-term investments such as corporate securities, public sector securities, insurer-managed funds and fixed assets including buildings, land and machinery.

In 2008, pension funds held around 59% of their assets in corporate securities, of which 56% was invested in the UK and the remainder overseas. Within the UK corporate securities portfolio, 37% was invested in shares, while allocations to UK mutual funds reached 45%, and company bonds received 18%. Looking at the overseas corporate securities portfolio, the ONS said 54% was held in shares, 26% was in mutual funds and 20% was in bonds.

According to the report, the growing investment area within long-term assets has been insurance managed, or pooled, funds as the value of such funds increased from £20bn in the mid-1990s to £103.6bn in 2007. The ONS claimed the impact of the recession reduced the value of these holdings to just £86.5bn in 2008.

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