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Monday June 21, 04:19
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Boots pension fund to stay in low-risk bonds
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The chairman of the Boots Pension Scheme has written to members to reassure them that their funds will remain invested in low-risk bonds, despite a company statement suggesting the scheme will take more risk.
In 2001, the Boots Pension Scheme became the first in the UK to invest the entirety of its assets in bonds, an unusual move while the average UK scheme held a 70 per cent weighting in equities.
At the time, the trustees told members that the move, while unusual, was aimed at matching assets and liabilities and would reduce risk.
The subsequent collapse of equities markets and the decline in interest rates has left the Boots scheme among the best funded in the UK.
However, in May, Boots announced that it expected its pension expenses to rise next year and that it would switch 15 per cent of its portfolio into assets other than bonds.
The announcement sparked concerns among some scheme members that the trustees had agreed to adopt a riskier investment strategy in the hope of earning higher returns that would enable Boots to limit its own pension contributions.
In his letter, John Watson, chairman of the Boots Pension Scheme, sought to reassure members, saying: "The pension fund remains well funded and, as a result of our decision three years ago to invest substantially in bonds, is in a very much better postion than the vast majority of those of other large companies."
However, the letter notes that an entirely bond-based strategy faces practical difficulties, particularly when it comes to matching liabilities to be paid in the very distant future.
Therefore, a small portion will be invested in other assets while leaving "the vast majority" in bonds. "I wish to reassure you that our continuing aim is to match assets to fund liabilities wherever possible," Mr Watson wrote.
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