European solvency hit by crashing markets
30 July 2008

Written by Sophie Baker

Funding levels have been affected by falling markets, according to Lehman Brothers’ latest Pension Fund Solvency Indicators released in its 2008 European Pensions Briefing for the first half 2008.

The Indicators show that pension fund solvency ratios in the UK, Netherlands and Germany have fallen over this period, and the typical fund saw the eroded by falling asset values and rising inflation expectations.

The worst affected pension funds were seen in the UK with solvency levels falling by 13 per cent by 30 June 2008. German funds lost 9.7 per cent, and Dutch funds 8.3 per cent. Pension funds in the Netherlands, however, did benefit as commodity prices increased to record levels due to their high exposure to alternative investments such as oil and metals.

Alan Rubenstein, head of the European Pensions Advisory group, said: “These figures show the impact that falling equity and credit markets have had on pension funds across Europe. They are also a reminder of the impact that hedging and asset allocation can have on fund performance. In the UK, for example, funds that hedged their liabilities saw funding levels fall by four per cent less than those that did not. The relative resilience of Dutch pension schemes, meanwhile, highlights the value of diversifying portfolios through alternatives.”