The U.K. government must issue more long-term, index-linked debt to satisfy increasing demand from pension funds for these assets, said Ruston Smith, chairman of the National Association of Pension Funds.
Speaking to delegates at the opening session of this year's NAPF investment conference, held annually in Edinburgh, Mr. Smith, who is also group pensions director at Tesco, warned that supply is not matching up to demand.
“(A) continuing development as DB schemes continue to mature is the increase in derisking and the demand this places on long-dated, inflation-linked government bonds,” Mr. Smith said. “According to the Purple Book (data on the U.K. defined benefit pensions market compiled by the Pensions Regulator and the £15 billion ($25 billion) Pension Protection Fund, London), DB schemes have increased their allocations to gilts and fixed income to 45% from 20% just over the last five years, despite historically low yields.
“Even while equity markets rally, schemes continue to derisk. So we need government to issue more long-term index-linked debt. The demand is there, and it needs to be matched with supply,” Mr. Smith said.
