Three of the U.K.'s four largest banks put more of their pension fund assets into cash than any of the other 20 companies with the largest pension funds last year, according to a survey by the Bloomberg Risk newsletter.
The pension funds of Lloyds Banking Group PLC, Royal Bank of Scotland PLC and Barclays PLC increased their cash holdings to a combined £11 billion ($17 billion) at the end of 2011 from £6.6 billion in 2010, according to a Bloomberg Brief survey of the pension liabilities in the Stoxx 600 index. The three U.K. banks manage the largest pension liabilities among financial companies included in the index.
The U.K.'s Financial Services Authority, which is implementing the latest rules set by the Basel Committee on Banking Supervision, said in February last year it expected banks to take pension risks into account in their capital calculations. The cut in equities, which might have been implemented to reduce investment risk, could also have helped the funds in the second quarter of 2012 when equity markets in Europe tumbled.
“Banks, looking at what the effect of Basel is likely to be, may look at their own pension schemes and try and increase stability by encouraging trustees to invest more conservatively,” Deborah Cooper, a London-based pension consultant at Mercer, said in an interview. “As a pure investment decision, many would be looking to do so anyway given the market environment.”
Barclays increased cash as a percentage of total assets by almost eight percentage points to 14% during 2011, according to its annual report. London-based Lloyds boosted its cash holdings to 17% from 13%, while RBS climbed just less than six points to 14%, according to their annual reports.
Barclays and RBS both completed triennial valuations that increased required cash contributions to fill funding gaps, their reports showed. Barclays said in its report some of the cash would be reinvested “shortly” after the end of 2011. Officials at Barclays, RBS and Lloyds declined to comment on their pension fund's cash positions beyond the filings.
