ukUK pension funds are being urged to ditch their estimated £100bn investment in UK government debt, or gilts, after consultants branded the asset class unfit for purpose.

In a document sent to pension fund clients, consultant PwC questions whether gilts are fit for inclusion as a core portfolio component after £375bn worth of quantitative easing pushed yields to historic lows.Raj Mody, chief actuary at PwC, says: “There is an accepted myth that gilts are the best matching asset for UK pension liabilities but is that true during QE, which is distorting what gilts stand for?”

Following the most recent round of QE at the start of July, 10-year gilt yields fell to record lows of 1.4 per cent.

Given that UK pension deficits stand at £267bn according to June figures from the Pension Protection Fund, such low gilt yields may drive trustees to consider more derivative-based strategies that free up capital and promise the opportunity to deliver extra return.