More than half (59%) of UK pension funds beat their investment performance benchmark and the average return was 18.7%, making 2005 the best performing year since 1999, according to Mellon Analytical Solutions, which measured the performance of 570 UK pension funds.
Looking at performance over the last six years, which incorporates the losses in the early part of the decade, UK pension funds achieved a weighted average return of 3.0% p.a. This represents a real rate of return of 0.5% p.a. against retail price inflation but an underperformance of 0.9% p.a. against earnings.
The fund median was 19.2% in 2005, indicating that smaller funds generally outperformed larger pension funds over the year. While the performance of smaller schemes will have benefited from higher equity weightings and lower index-linked weightings, larger funds benefited from higher weightings in property.
Overall equity weightings fell for the sixth consecutive year, from 66.5% to 64.5%, due to pension funds continuing to reduce their exposure to UK equities. Over the year, average UK equity weightings fell from 39% to 35.7%, their lowest recorded level since our records began in the mid 1970s.
At the same time pension funds increased their overseas equity weightings from 27.5% to 28.8%, with US and Japanese equities being the main sectors to benefit. US weightings rose by 1.2%, from 8.5% to 9.7%, while Japanese Equities rose by 0.5%, from 4.6% to 5.1%. European equity weightings fell from 9.7% to 9.2% over the year and as a result year-end US equity weightings exceeded European weightings for the first time since the end of 1988.