Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “July was another positive month for the schemes following a tumultuous period over the last year, with the aggregate funding position remaining well in surplus. While yields drifted downwards slightly, strong asset returns cancelled out the impact of this, as both assets and liabilities increased slightly over the course of the month.
“With many DB schemes in an apparently more stable and comfortable position than they have been in for some time, some trustees may be starting to turn their attention to other targets. The publication this week of the latest report from the Intergovernmental Panel on Climate Change has thrown the need to confront climate change to the forefront of the public conversation.
“The urgency of environmental, social and governance (ESG) issues is even more pressing for schemes with over £5 billion in assets, which will be required to make new TCFD disclosures from the start of October. DB schemes of all sizes should see this is an opportunity to ensure that they are managing their climate risk, making appropriate plans and giving these challenges the attention they deserve.”
Sion Cole, Head of UK Fiduciary Business at BlackRock, said: “Over July the aggregate funding ratio decreased by 2.3%, from 105.8 per cent at the end of June 2021 to 103.5 per cent. This decrease is not wholly surprising given the fall in bond yields. However, if schemes are well hedged funding levels should be resilient to changes in yields.
“Uncertainty around the economic outlook and forward trajectory for policy settings will continue to frame pension funds’ decision-making. While the Bank of England’s (BoE) Monetary Policy Committee (MPC) decision to keep the policy rate and pace of asset purchases unchanged has cemented monetary policy support through the rest of the economic restart, the latest statement signalled a shift in the mood music around the prospects of monetary tightening. Over the medium term it will be interesting to observe how the trigger points for higher interest rates develop as government furloughs come to an end and inflation ticks up. We see this first rate hike coming in the first half of 2023 – a little later than markets have been expecting. Of course, volatility in global markets is on the rise as new virus strains emerge in nations with much lower vaccination penetration. Pension funds need to act now to consolidate progress in funding positions achieved over the past year and buckle in for more volatility.”
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