Jaime Norman, Senior Actuarial Director at independent consultancy Broadstone, commented: “Whilst the reported surplus has risen, we might expect this to be adjusted downward once data becomes available on Liability Driven Investment funds, which make up a significant proportion of UK pension scheme assets.
“As expected, however, the latest figures show that the aggregate liability value has fallen significantly over the last month, due to the jump in long dated gilt yields over the month of September
“A key aspect of defined benefit schemes is that big falls in liability values do not change the benefits payable to members, it is just the way these benefits are valued by actuaries. There has been a lot of noise in the press about pension schemes being at risk and so getting the message out there that members are largely unaffected is important.
“From a pension scheme trustee perspective, a fundamental reduction in the size of the pension scheme can have implications on the ability for the employer to support a scheme (a smaller scheme might be more manageable) and may open up opportunities for de-risking and end-game planning that were previously unaffordable.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “Funding levels for schemes increased in September with a surplus to £374.5 billion – up by over £60bn compared to August 2022. A predictable fall in both assets and liabilities values mean that the funding ratio is now at 134.8%.
“Despite remaining in surplus, it’s certainly not been plain sailing with trustees managing investment issues around the spiking gilt yields and the mini-Budget which caused volatility in the pound and turmoil in the financial markets. The media has reported concern due to the potential impact on the security of members’ benefits as well as the risks embedded in the use of liability-driven investment strategies by DB schemes. The increased funding levels, however, demonstrate that schemes have not been as negatively affected as headlines would suggest. With the Bank of England stepping in to rein in gilt yields and reduce volatility this should allow schemes to manage their liquidity requirements and investments better, thereby increasing member certainty.”
|
