ukUK pension fund returns have outperformed increases in UK retail prices and wages significantly over the past 50 years, a study by UBS Global Asset Management has found. Between 1963 and 2012, the average fund returned slightly above 10 per cent – 4.2 percentage points ahead of retail price inflation and 2.6 percentage points above wage inflation, UBS’s latest annual pension study reveals.

“Essentially, the whole point of the DB pension market is to collectivise risk and to allow a population of investors to take risks that perhaps on their own they wouldn’t be comfortable taking,” he says. The findings also support the widely held – and hotly pursued – view that equities perform better than bonds over the long term. The report showed that UK equities produced an average return of 11.8 per cent annually in the 50 years to 2012.

Figures for 2011, however, were not particularly stellar, with pension fund returns falling to 3.6 per cent and slumping behind retail price inflation. Despite this stall, returns bounced back in 2012, hitting 8.4 per cent. For the 10 years to 2012 the average UK fund returned 8.3 per cent – slightly lower than the return over 50 years.

The UBS study also highlighted the growing interest in “smart beta” strategies, which are intended to provide better risk and return trade-off than normal market cap weighted indices. Appetite for such strategies, finds the report, is expected to continue to grow. But it warns that the merits of such products “seem quite variable” in some cases.

  FT