Boots Chair Reassures Members on Bond Allocation

June 21, 2004 ( - The Boots Pension Plan, the first in the UK to put its entire portfolio into fixed income, apparently isn't departing very far from that posture any time soon.

Chairman John Watson has reassured members in a letter that funds will stay almost entirely invested in low-risk bonds, despite an earlier plan statement suggesting the plan will take on more risk, the Financial Times reported.

The latest communication, coming after a May Boots announcement that it planned to move 15% of its portfolio out of bonds to better meet its pension expenses, revised that stance to only moving a small unspecified amount while leaving “the vast majority” in 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.

“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 position than the vast majority of those of other large companies. I wish to reassure you that our continuing aim is to match assets to fund liabilities wherever possible,” Watson wrote, according to the Financial Times report.

The 2001 Boots decision to go almost entirely for fixed income was highly unusual since the average UK plan held a 70% weighting in equities (See  Boots Walks Away From UK Equities ). At the time, plan 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 plan among the best funded in the UK.