Jaime Norman, Senior Actuarial Director at independent consultancy Broadstone, commented: “Defined benefit pension schemes have experienced significant volatility during the last month in the aftermath of the controversial mini budget. Gilt rates see-sawed dramatically as the initial market reaction was countered by the Bank of England’s emergency intervention.
“While the market has calmed and a sense of stability has returned, the long-term picture on schemes’ investment strategies is still uncertain as we await further data on Liability Driven Investment funds, which make up a significant proportion of UK pension scheme assets.
“Reassuring members that their pensions remain secure and payments are largely unaffected will be a key responsibility of schemes over the coming months given the level of noise that accompanied the market fallout. The wider improvement in funding levels seen throughout the year also means that de-risking opportunities are more affordable than previously thought.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “The markets saw a bit more stability over the course of October and while the effects of the mini-Budget at the end September are still being felt, the initial turmoil seems to have calmed. This has been reflected in DB scheme funding levels, which remained steady through October at a surplus of £374.7 billion – up just slightly from £374.5 billion at the end of September. The funding ratio now sits at 133.6%.
“Whether schemes are truly out of the storm, however, or merely in the calm of the eye of the hurricane remains to be seen. There is understandably a great amount of pressure and expectation resting upon the new Chancellor’s upcoming fiscal statement, which is due on November 17th. Trustees will likely be hoping the speech provides something safe and reassuring for the markets, to avoid the volatility which followed the September Budget.
“Intervention from the Bank of England too has been a major consideration for pension schemes. The Bank has now ended the gilt buying programme that provided much-needed relief last month, but schemes will still have to consider how the further recent rise in the base rate to 3% impacts longer term bond yields, and factor this into their investment strategy. With so much change in such a short period, all schemes should take this time to carefully examine the assumptions underpinning their current strategies and be ready to revaluate these if necessary. Trustees of course can’t prepare for every eventuality, but the last few months have shown that carefully planning, combined with a healthy dose of flexibility, is essential.”
https://www.ppf.co.uk/ppf-7800-index
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