Why pension surpluses should get investors to prick up their ears - FT中文网
登录×
电子邮件/用户名
密码
记住我
请输入邮箱和密码进行绑定操作:
请输入手机号码,通过短信验证(目前仅支持中国大陆地区的手机号):
请您阅读我们的用户注册协议隐私权保护政策,点击下方按钮即视为您接受。
FT商学院

Why pension surpluses should get investors to prick up their ears

With interest rates higher, many schemes are moving out of deficit, which could feed through to share prices

Over the years, I had several grim meetings with management at the now defunct Uniq dairy food company. We should have been talking about cream cakes. Instead, most of the meetings seemed to be about its huge, badly underfunded pension fund. Pension fund concerns have soured many a company meeting subsequently.

Britain’s long history of paying low wages but extraordinarily generous final salary — or “defined benefit” (DB) — pensions has left a painful legacy. It has been made worse in some cases by chief executives who are nearing retirement opting to receive less in bonuses in favour of a higher salary, knowing they were locking in the income for life. In some schemes it is a handful of these big earners who are responsible for much of the deficit.

Too often, cash needed to be injected to fill the chasm between a scheme’s obligations and what was in the coffers. This money could have been spent on the business, improving returns for investors. I am afraid you have to get your head around this if you buy UK shares, but I think it is worth the effort.

Some history, briefly. The pension problem became even more apparent in about 2000 when, among other regulatory changes, an accounting standard was introduced that required a company to state any shortfall in its DB scheme as a financial liability on its corporate balance sheet.

Successful investment is about managing risk, not eliminating it. Without risk, returns are meagre

Many companies responded by closing their DB schemes and moving to de-risk their pension schemes to avoid swings in reported shortfalls. This meant selling down equities and buying gilts — not the best idea, it transpired.

Successful investment is about managing risk, not eliminating it. Without risk, returns are meagre. And these companies could not afford meagre returns. In the years after the rule change, deficits often worsened as interest rates fell and liabilities increased, because scheme members were living longer than expected. In 1990, for example, we expected men in the UK to live to nearly 73 and women to over 78. By 2018 it had risen to 79 and 83, according to the Office for National Statistics.

There were other unintended consequences of the collective de-risking. The headwind for UK equities of pension funds selling down their exposures meant the relative cost of capital for UK companies increased — issuing shares no longer raised the same amount as it had. All this meant less capital for productive investment. It helps explain under-investment by UK companies and its relatively poor productivity. 

Some company bosses, weary of the responsibilities and distraction of the whole thing, transferred out their pension funds to an insurance company. However, change is happening. And here is where investors should prick up their ears.

With interest rates higher, many schemes are now moving from deficit to surplus. Ten years ago the average pension deficit across the FTSE 100 was 6.2 per cent and across the FTSE 250 nearer 16 per cent, according to stockbroker Liberum. Today that has become a 3 per cent surplus for the FTSE 100 and a 1.1 per cent surplus for the FTSE 250.

Longevity is no longer increasing either. It has actually fallen slightly. A pension fund in surplus might now prove an asset to a company that does not jettison its scheme.

The new Pensions Funding code comes into force this month. This allows increased flexibility for pension funds to dial up the risk on the surplus element, allocating a bigger portion to equities. This will happen only if the company retains control — not if it passes a fund on to a large insurance company. Equities generally generate greater returns over the long term than gilts, strengthening fund positions further and enabling beneficiaries to be given better inflation protection or other enhancements.

It will, quite rightly, remain very challenging for companies to simply take surpluses back, but with the support of pension fund trustees they can use surpluses to reduce contribution costs for the current workforce, now in defined contribution schemes — improving employee satisfaction and helping with recruitment.

Meanwhile, I believe this improving position should benefit many investors. An example may illustrate why. In 2018 NatWest agreed to pay up to £1.5bn in additional contributions into its pension fund. It paid an additional £1bn between 2020 and 2021. Today it has a surplus. In fact, as much as £45bn may now be sitting as surplus in FTSE 350 company pensions. 

I expect these improving numbers to feed through to share prices. We saw this with Premier Foods in April 2020, when it merged three schemes — one in surplus and the other two in deficit ­— enabling it to nearly halve deficit contributions and invest in its first TV ads for Bisto gravy granules in six years.

Between the beginning of May and mid-July that year its share price doubled. Its other brands, like Sharwood’s and Mr Kipling, have also seen more investment recently, with exceedingly good results, if its latest trading update is anything to go by — 9 per cent sales growth for groceries in the first quarter. 

Intriguingly, some of the UK companies that have attracted cash bids this year, like our former holdings Wincanton and Royal Mail owner International Distribution Services, have pension surpluses. So I am watching these numbers very closely within company reports, as I am not sure the market is fully awake to the potential benefits.

I also believe we are past the lows of equity allocation by pension funds and might be seeing a reversal of a 20-year trend. You may think I am venturing into fantasy land now, but we might even see an increase in pension fund allocations to UK equities. The pensions bill announced in the recent King’s speech needs to work through parliament, but it will be interesting to see if the new Labour government pursues the idea of encouraging and even forcing more UK pensions and savings to invest in British companies.

Individual investors may not need such incentives. The economy here appears to be strengthening, wages are growing faster than inflation for the first time in years and UK shares still look relatively cheap. 

James Henderson is co-manager of the Henderson Opportunities Trust, Lowland Investment Company and Law Debenture. He owns NatWest stock.

版权声明:本文版权归FT中文网所有,未经允许任何单位或个人不得转载,复制或以任何其他方式使用本文全部或部分,侵权必究。

再次陷入危机的大众汽车能走上改革之路吗?

欧洲最大的汽车制造商正与工人和政界人士交战,试图渡过痛苦的电动汽车转型期。

哈里斯的另一个大选对手:通货膨胀

美国选民对高昂生活成本的不满可能决定下周谁将赢得白宫。

Lex专栏:Meta和微软通过季度理智检查

科技巨头今天吹捧真正的胜利,以证明明天的巨额投资是合理的。投资者对此是支持的,但程度有限。

FT社评:英国工党预算——雄心勃勃,前景不明

财政大臣蕾切尔•里夫斯现在必须兑现她的投资计划,否则税收还将进一步增加。

Lex专栏:大众汽车很难走出死胡同

尽管这家汽车制造商计划裁员和关闭工厂,但投资者的担忧是可以理解的。

安谋如何成为人工智能投资热潮中的意外赢家

这家由软银控股的英国芯片设计公司的股价在过去一年上涨了两倍。但它的野心远不止于此。
设置字号×
最小
较小
默认
较大
最大
分享×