19 Jan 2006, Alexander Campbell, Risk magazine
The fall in yields will harm pension funds, which calculate their liabilities from the real yields on matching assets - a fall in yields means a rise in liabilities. Because funds tend to measure their liabilities monthly or quarterly rather than daily, the full extent of the problem is not yet clear. But it has been estimated at £28 billion by Aon Insurance.
Donald Duval, Aon Consulting's chief actuary, blamed a change in pension accounting rules that had compelled company pension funds to cover their inflation liabilities by buying index-linked stock: "There just isn't enough stock available to go round. Unless the Government issues a huge amount of index-linked stock, this kind of market instability is likely to persist for several years."
© Incisive Media Investments Limited 2013, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093