European pension plans are overwhelmingly negative about the impact of Britain's decision to leave the European Union, according to new report.

The report, by Create Research and Amundi, questioned 169 pension plans in Europe with combined assets of €1.76 trillion.

Schemes were asked about three key issues: how rising nationalism will affect financial markets over the rest of the decade, what asset allocation approaches are likely to be adopted, and which investment innovations are likely to deliver acceptable results in the volatile environment.

92% of survey respondents anticipate increased volatility over the next three years and 76% expect market prices to disconnect from fundamentals.

When it comes to how Brexit will impact their pension plans over the next three years, 54% said they expect investment returns to decrease, while 68% predict increased financial deficits.

The number of UK pension plans in deficit has already risen to 4,995 from 4,854 at the end of May 2016.

Pascal Blanqu?©, chief investment officer of Amundi, said: "Pension plans across Europe have come to realise that they have a stark choice in this era of negative yields – continue to do what they have been doing and march nobly off a cliff, or adapt and change.

"Central banks and markets appear caught in a tight embrace for the foreseeable future, and to survive the turmoil investors need to venture before financial theories to develop new insights into generating returns."

The report also found that in a political environment that includes a rise in nationalism, global equities and infrastructure are the asset classes of choice, favoured by 57% and 50% of pension schemes respectively.

Alternative credit is the next most popular choice (46%), followed by private equity (42%).

As asset values have become distorted by monetary policy, pension plans are viewing innovation to be essential for future success, the report found.

Low carbon strategies and environmental, social and governance (ESG) initiatives are seen to be game changers, because the markets will be increasingly pricing in the recent climate change targets.

First published 02.12.2016

Lindsay.sharman@wilmingtonplc.com