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COMPANIES UK: Boots pension fund still avoiding equities

By Stephanie Kirchgaessner

Financial Times, May 06, 2003

The Boots pension fund has ruled out mounting speculation that it plans to re-start buying equities after its landmark decision to switch its investments into bonds.

John Watson, chairman of the trustees of the Boots pension scheme, said a move back into equities was "not currently on the agenda".

The comments come after months of stock market speculation that the pension fund might start to reverse its investment policy following the departure late last year of John Ralfe, head of corporate finance at chemists' chain and one of the architects of the switch into bonds.

The departure followed disagreements with Howard Dodd, new finance director, over issues including pensions. Under Mr Dodd, Boots backtracked from a commitment to early adoption of the controversial accounting standard FRS 17 which takes a snapshot of the assets and liabilities of a pension fund.

The statement by Mr Watson is likely to prompt a collective sigh of relief among Boots employees as other pension funds struggle to cope with large deficits because of their exposure to sagging equity markets.

Analysts estimated UK pension funds had a deficit under FRS17 of 85bn at the end of January. The figure represents a stark contrast to Boots' 2.4bn pension fund, which showed a surplus of 170m in March 2002.

Critics of the Boots strategy say a move back into the stock market could lead to higher returns in the long-term and lessen the burden on the company for contributions to employee schemes. Some analysts have also argued bond prices are due for a correction after a sustained rally.

But Mr Watson, who rarely comments in public, does not seem to be deterred. "While John Ralfe helped us greatly with the move to bonds, the ultimate decision was taken by the trustees. John Ralfe's departure from Boots will have no impact on our long-term strategy," he said in a letter to Professional Pensions.

The chairman also emphasized that the final decision on investment strategies lay with trustees, not Boots' management.

"Clearly in arriving at our preferred strategy we take into account many issues, including any views the company may wish to put to us," Mr Watson said.

But he added that "our investment strategy is the responsibility of the trustees, and the trustees alone".


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