Widows limits pensions exodus

Scottish Widows has become the latest fund manager to be forced to close the door to investors in its £2.1bn property pension funds.

Scottish Widows has become the latest fund manager to be forced to close the door to investors in its £2.1bn property pension funds.

Investors will now need to wait up to 180 days to withdraw money from Scottish Widows’ life property fund and pension property fund after a run on cash took liquidity levels to a crisis point. The cash level within the funds is now less than 2 per cent.

The move is likely to further fuel the panic among retail investors in commercial property funds, which have seen a sharp drop in value owing to a slump in property prices. Investors have been pouring out of the funds since last summer, forcing several fund managers to limit redemptions.

The delay allows Scottish Widows to sell property to generate more cash to give to exiting investors.

The move could affect some 200,000 policyholders who request full or partial redemptions, transfers or switches, although will not apply to regular pension payments or for circumstances such as death or retirement pay-outs.

Friends Provident introduced a cap before Christmas, while Scottish Equitable told the 129,000 investors in its property funds last week that they might have to wait up to a year to withdraw.

Scottish Widows, owned by Lloyds TSB, said the commercial property market had seen a slowdown, which “has led to some investors taking the profits they have made from commercial property over recent years, lowering the short-term liquidity levels of many property funds in the market”.

The funds saw high levels of switches into other funds in recent months, it said. The fund manager will now undertake an orderly programme of sales. The restrictions do not apply to other Scottish Widows funds, including its retail property unit trust.

To date, none of the unit trusts in the market have been forced to take any action against exiting investors, in spite of the fact that some have neared 5 per cent in cash and equities, which is seen as a critical level of liquidity. Unit trusts have normally had larger buffers of cash and equities than pension funds.

Ironically, in 2006, Scottish Widows had to impose restrictions on investors entering the fund after receiving too much cash, underlining how recently the turn in the market occurred. Until last summer, the sector was by far the most popular among retail investors.

Mark Dampier of investment adviser Hargreaves Lansdown described it as a race between how much money was leaving the funds and how long it took property to sell. “It is only a matter of time before funds get run down again unless something changes,” he warned.

Source The Financial Times Limited 2008