Pensions - Articles - Self sufficiency funding stabilises after Autumn volatility


Self-sufficiency funding level for fully hedged schemes drops from 80% to 71% through 2022 but improves in November and December. Half-hedged scheme improves self-sufficiency funding to 95%. Buy-out deficit shrinks markedly for fully and half-hedged schemes.

 The Broadstone Sirius Index found that market stability through November and December saw both its hedged and unhedged schemes steadily improve funding levels and reduce deficits after previous months of significant volatility.
  
 As with the rest of 2022, the impact of rising interest rates has impacted asset valuations less for the 50% hedged scheme. This resulted in a larger funding improvement for this scheme over the last two months, compared to the fully hedged scheme.
  
 While both schemes started the year at an 80% funding level, the scheme with only 50% of liabilities hedged ends the year at 95% compared to 71% for the fully hedged scheme’s funding position.
 
 Crucially though, both model schemes have reduced their deficits as assets, liabilities and therefore the deficit are all much smaller now. In particular, the buy- out deficits end the year much lower than the £18.5m where they started it. This has decreased to £13m where liabilities were fully hedged and £6m where only 50% of liabilities were hedged.
  
 Nigel Jones, Head of Consulting & Actuarial at Broadstone, said: “After a volatile year, especially through the Autumn period, it is great to see that self-sufficiency funding levels have stabilised towards the end of 2022.
  
 “This period of relative calm is now a useful time for schemes – whether they have hedged previously or not – to assess the impact of the turbulence we’ve seen in long-dated gilt yields.
  
 “Trustees and sponsors should be using this time to engage with their investment consultants and LDI managers to understand the impact on assets as well as reviewing their investment strategy and journey plan for the revised deficit.
  
 “The dramatic reductions in the gaps to buy-out for sponsors of all shapes and sizes is further good news and consideration should be given to preparing for an approach to the insurance market in many cases.
  
 “However, the immediate macro-economic environment remains murky. Trustees and sponsors should be mindful of the risks caused by any future falls in asset values stemming from rising long-term interest rates and/or impending recession.
  
 “2022 may well have been a good year for the deficit size of schemes but many risks remain.”
  

Back to Index


Similar News to this Story

Wish list for the occupational pensions industry in 2025
As one year closes and another begins, it's an opportune moment to set our sights on the future. The UK occupational pensions industry faces nume
PSIG announces outcome of Consultation
The Pensions Scams Industry Group (PSIG), which was established in 2014 to help protect pension scheme members from scams, today announced the feedbac
Transfer values fell to a 12 month low during November
XPS Group’s Transfer Value Index reached a 12-month low, dropping to £151,000 during November 2024 before then recovering to its previous month-end po

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.