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Investing

U.K. corporate pension funds increasingly moving assets to bonds – report

The average bond allocation by defined benefit plans of U.K. FTSE 100 companies grew to 64% at the end of 2017, up from 35% a decade earlier.

JLT Employee Benefits' latest quarterly report showed that, over the 12 months ended Dec. 31, 10 pension funds of FTSE 100 firms switched more than 10% of their assets into fixed income. The average allocation to fixed income increased from 62% as of Dec. 31, 2016.

Further, 64 of FTSE 100 firm funds have more than 50% of assets allocated to bonds.

JLT said a number of pension funds have large equity allocations, with a mismatch to liabilities. However, strong markets in the second half of 2017 helped drive a 25% fall in deficits over the period, to 41 billion ($55.3 billion).

Cash contributions by sponsoring employers fell to 8.7 billion for the year, down from 11.3 billion in 2016.

"FTSE 100 pension schemes have clearly been proactive in taking steps to derisk their schemes; the significant shift into bonds is certainly an encouraging sign of trustees' and sponsor commitment to tackling scheme risk in the context of company balance sheets," Charles Cowling, chief actuary at JLT, said in a statement accompanying the update. "It is also reflects pension schemes locking in gains as equity markets have powered ahead."

Mr. Cowling highlighted the high levels of investment mismatching, warning that market conditions in 2018 "have delivered a much rougher ride and maybe as a result, pension schemes are increasingly looking at alternative investment strategies."