2008 Market Volatility Impacts Performance of UK Pension Funds

LONDON - Bonds buck the trend with returns of 58.1% for Overseas and 12.8% for
UK

- Shift away from equities continued during 2008 falling below 50% for
first time

New research from BNY Mellon Asset Servicing, published today,
reveals that the average UK pension fund achieved a weighted average return
of -13.6% for the year ending 31 December 2008. This is the first time that
BNY Mellon has recorded negative yearly returns for UK pension funds since
the three-year downturn at the beginning of the decade.

Results were just in positive territory over the medium term,
with the average pension fund achieving a return of 0.1% p.a. over three
years to 31 December 2008. Results were even more promising over longer term
periods, with funds achieving a weighted average return of 5.6% p.a. over a
five-year period. Funds made real returns over this period of 2.6% p.a.
against the Retail Prices Index, and 1.7% p.a. against the National Average
Earnings Index. Over 10 years to 31 December 2008, the average fund achieved
a return of 3.7% p.a. which represents a real return of 1.1% p.a. against the
Retail Prices Index.

Over the year, equity market returns were in negative
territory for each of the key sectors. The poorest equity performances came
from Emerging Market and Pacific Basin ex Japan Equities with returns of
-35.4% and -31.3% respectively. UK Equities fared only slightly better and
returned -29.9% over the same period. Japanese (-1.3%) and US (-12.5%)
Equities provided the strongest returns comparatively. This can partly be
attributed to sterling weakness against the yen and the dollar, boosting
returns in these markets to the UK investor.

Bonds fared better during 2008, with UK Bonds returning 12.8%.
Over this period Overseas Bonds provided the strongest overall result with
58.1%, although this was primarily driven by sterling weakness. Index-Linked
Gilts also provided positive results and returned 3.7% over the same period.

2008 saw Property struggle for the second consecutive year,
with this sector achieving a return of -24.0%. This is the lowest yearly
return we have seen for the CAPS Property Index since our records began in
1980.

Asset allocation trends

During 2008 the average asset allocation to Equities fell
below 50% for the first time ever and reached a record low of 48.8% at the
year end. In addition, the allocation to Overseas Equities was slightly
higher than that to UK Equities for the first time ever (24.8% compared to
24.0%). The second half of the year also saw a turning point for allocations
to UK Bonds, with the allocation exceeding that to UK Equities for the first
time.

By the year end 30.0% was invested in UK Bonds with only 24.0%
in UK Equities. Within UK Bonds the trend to invest more in corporate bonds
also continued in 2008 with the allocation increasing to 17.8% at the year
end, while gilt allocations were slightly down year on year.

Commenting on the results, Alan Wilcock, BNY Mellon Asset
Servicing’ Performance and Risk Analytics Manager, said: “2008 was an
extraordinary year in many respects, with overall pension fund returns
producing the worst result in the last 30 years, despite the long-term shift
away from equity allocation which progressed further during the year.”

Notes to editors

The performance analysis and other information in this press
release are based on historical data and are intended for informational
purposes only. Past performance is not a guarantee of future performance.
This press release does not constitute investment advice, nor is it an offer
or recommendation of any security, investment product, service or firm.

BNY Mellon Asset Servicing offers clients worldwide a broad
spectrum of specialised asset servicing capabilities, including custody and
fund services, securities lending, performance and analytics, and execution
services. BNY Mellon Asset Servicing offers its products and services through
The Bank of New York Mellon and other subsidiaries of The Bank of New York
Mellon Corporation.

The Bank of New York Mellon Corporation is a global financial
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Source: BNY Mellon Asset Servicing

Louisa Bartoszek of BNY Mellon Asset Servicing, +44-20-7163-2826, louisa.bartoszek at bnymellon.com