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1. INTRODUCTION
Pension is a fixed sum that is paid on a regular basis to a person who has
reached a specified age or is retired from his work. It is normally rewarded
from the date of reaching a specified age (normally 60-65) or retirement
age until death. A widow is provided with pension after her husband’s die.
Employee and employer both contribute toward the pension fund. In UK,
the London Pension Fund Authority (LPFA) is among the biggest local
government pension scheme having managing assets worth £3.7 billion
and having more than 73000 members (by Sep 2007). Until 1993 under
this scheme the assets and liabilities were managed as a single fund but it
was decided to split it into two different funds namely the Active sub-fund
and pensioner sub fund. The new funds created have different features like
the Active sub-fund which includes employers continue to invite new
member while the other fund namely Pensioner sub-fund restricted any
new members. Due to this, to properly match the definite nature of their
liabilities profile, there are material dissimilarities in that:
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• The contributions of Active sub-fund assets are majorly invested in
equities on the contrary the contributions made towards Pensioner
sub-fund assets are invested in bonds.
• The members of Pensioner sub-fund have more average age; we can
say that Pension sub-fund is more mature now while on the other
hand the present members of Active sub-fund have less.
3. PROBLEM STATEMENT
In this research we will be looking at the main problem that “Should
Banks in UK invests their Pension Funds in Equities or Bonds?”
Basically we will review that which among the equity and the bond
market provides better returns over the period of time and is better from
the perspective of company and the employee. Here we will oversee the
annual reports of banks in which they illustrate the amount of pension
funds they invest in different markets and the returns they get from that
and also the types of products they invest the money from pension fund
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with them. The core research question in this research will be that
which market provides better returns.
Is that Bond Market or it is equity market? As pensions are very
essential part of a person as it is income from where he can rely his life
after he is retired from his job.
5. RESEARCH DESIGN
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of data gathered by different sources into a form for viewing and
manipulating.
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seen as a random chance of any event. The Null hypothesis is
represented by Ho.
There exist two types of errors in hypothesis testing namely Type I error
and type II error. Type I error occurs when the null hypothesis is not
accepted or is rejected when it is true i.e. Ho is wrongly rejected. Type I
error is an important error and its necessary to avoid such errors. Type
II error occurs when the null hypothesis is wrong and is not rejected as
well. If the size of sample is too small there are more chances of Type II
error.
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a conclusion that which market gets maximum returns over a period of
time.
Coming to the limitations of this study there seems to be limitation with
the fact we cannot have primary data on this area as we are looking at
the past results and we cannot get the insights from the banks that where
is the pension fund being invested by them. So the major limitation
seems to be in this concern as primary data is more reliable as you
collect that in your own. But the primary data also has a problem that it
can be biased.
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