UK pension funds will probably reduce their average 56% allocation to equities in the process of shifting to liability-based benchmarking. New structure will more resemble life funds, which invest amid 31 per cent of their assets in equities.

To fulfill it, UK pension funds, that have £600 billion in assets, would need to change about £150 billion from equities to bonds. “Those clients that we have worked with are making substantial changes to their individual scheme assets so if that was reflected across every pension scheme then you would see some huge moves,” says Michael Marks, global head of transition management at Merrill Lynch Investment Managers.

Nonetheless, it doesn’t mean that all pension schemes will be changed.

It was disclosed that while net investment in equities fell by £2.7 billion, and rose £3.9 billion in bonds during 2003, the average pension scheme saw its equity weighting rise from 64.1% to 67.1% and its bond holdings fall from 25.8% to 23.4% due to market movements.

Still, the number of pension schemes that want a low equity exposure remains small. And without large investments in equities or similar asset classes, many companies will merely find their pension schemes unaffordable.