Boots pension fund gets out of shares to beat bear market

Boots, the high street retail giant, has quietly cashed in all the shares in its pension fund and bought bonds in response to plunging stock markets.

In a move that could trigger a stampede by other blue-chip firms, pension managers at the chemist store chain will next month tell fund members that they have sold all £1.7bn worth of shares over the last 15 months.

Boots' £2.3bn pension fund is one of the largest 50 in the UK with 72,000 members and until April was made up of 75 per cent equities, 20 per cent short-dated bonds and 5 per cent cash.

John Watson, the chairman of the trustees, said that to July of this year it sold all the equities and short bonds and bought the "highest quality" long-dated sterling fixed-rate bonds.

"Our aim is to ensure that the value of fund assets is always enough to pay all pensions, regardless of movements in financial markets," he said. "The bonds have virtually no credit risk and are the closest possible match for the scheme's pension liabilities."

Continuing to hold shares would have created the "risk of a deficit" that would have had to be met by extra company contributions, he said. Management and dealing costs will be cut to £250,000 from £10m by the move.

The trustees had taken the decision against a background of low inflation, a 25 per cent fall in the UK stock market, greater life expectancy of its members, the problems at Equitable Life and plans to change pension regulation, Mr Watson said.

The pension fund will hold its annual meeting in Nottingham on 28 November.

Boots pension is a final salary scheme, which means it pays a defined benefit to employees based on their salary. These schemes are generally being phased out in favour of defined-contribution schemes that are linked directly to the performance of the fund.