Russell/Mellon’s estimate of overall UK pension fund performance for the year ending 31 December 2004 is 10.0%.
The strong performance in 2004 represents a second consecutive year of positive performance following on from three years of negative returns and was driven by strong returns in some of the key equity markets. UK Equities achieved a market return of 12.8%, while Europe Ex UK (13.4%), Pacific ex Japan (20.0%) and the Emerging Markets (17.1%) also performed well. The US and Japan struggled comparatively with returns of 3.3% and 7.8% respectively.
Property was the other stand-out sector returning an estimated 16.2%. Index-Linked Gilts (8.5%), UK Gilts (6.6%), Overseas Bonds (2.4%) and Cash (4.3%) also all achieved positive returns.
Additionally, 2004’s performance puts pension fund returns back into positive territory over three years, with an estimated weighted average of 3.6% p.a. This is ahead of inflation, as measured by the retail prices index (RPI), which ran at an estimated 2.9% p.a. Measured over five years to 31 December 2004, returns are just positive at 0.1% p.a. Looking at the longer-term, pension funds produced much healthier returns. Over the last 10 years, pension schemes returned an estimated 7.8% p.a. compared with 2.7% p.a. for the RPI. This is also ahead of earnings inflation, which was 4.1% p.a. at 30 September 2004.