Last year saw UK pension funds enjoying their best returns since 1999, according to the Russell/Mellon CAPS estimate of overall performance. The 15.8 per cent average return follows three consecutive years of negative performance.
Despite the good news over one year, funds produced an estimated negative return of .2.8% p.a. over the three years to 31 December 2003. Over five years, pension funds overall still managed to achieve a positive return, of 1.8% p.a. However, this was less than Retail Price inflation for the same period, which ran at an estimated 2.1% p.a. Over 10 years, pension fund returns have averaged 6.3% p.a.
The strong performance in 2003 was driven by double-digit positive returns in each of the major global equity markets. UK Equities achieved a market return of 20.9%, while Europe Ex UK (29.3%), Japan (22.8%) and the US (15.1%) also performed well. The strongest overseas equity performers however, were Emerging Markets and Pacific Ex Japan, with returns of 40.1% and 31.0% respectively.
Index-Linked (6.6%), Overseas Bonds (3.0%), Property (7.6% estimated) and Cash (3.5%) all made gains in 2003, while Fixed Interest stocks provided the poorest performance of 2.1%. “After a slow start to the year, with poor equity performance in the first quarter, the markets have rallied well,” says Daniel Hall, Russell/Mellon CAPS Publications and Statistics Manager.” Following on from the disappointing returns in the last three years, these results are great news for pension funds.”
Russell/Mellon CAPS detailed analysis of pension fund performance will be available in March.