Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone commented: “After a brief period of calm at the start of the year, persistent high inflation has been sending gilt yields on yet another mini surge.
“With the Bank of England likely to react with further strong base rate hikes, some turbulence could linger for the coming months as the market awaits a substantial decline in core inflation numbers. Yet pension schemes are riding the storm and saw further increases to the aggregate surplus through June.
“Pension schemes need to be mindful of how suited their investment strategy is to the current economic situation as well as looking ahead to consider the impact of the economy going into reverse. Trustees should be discussing the bearing on funding and member benefit calculations to see if they need to make any changes to protect scheme members.
“In the midst of that, the journey to endgame could also be within touching for many schemes and Trustees need a laser focus on administration and data to make their scheme as attractive as possible given the congested insurance market.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “Another monthly increase in the aggregate surplus of the schemes in the PPF Index means that the overall funding ratio now sits at 145.8%. The overwhelming majority of the schemes in the Index are in surplus, in a healthy funding position, but this doesn’t mean that the rest of the year will be plain sailing.
“With gilt yields rising yet again, we may now see cash management and collateral calls come back into focus. Last year’s LDI crisis continues to cast a long shadow and there are clearly lessons to be learned for the future. The House of Commons Work and Pensions Committee released its long-awaited LDI report at the end of last month, which contains a number of recommendations for schemes and is important reading for trustees. Similarly, the Mansion House reforms set out by the Chancellor this week suggest there may well be more governance work for trustees to address this year.
“Speaking with experienced advisers and specialists can be a useful first step for any DB scheme trustees who are unsure about what these changes might mean for them.”
Kieran Mistry, Senior Business Development Manager at Standard Life, part of Phoenix Group: “Funding positions for UK defined benefit schemes experienced a slight increase at the end of June 2023, following a continued rise in interest rate expectations in response to persistently high levels of inflation. The aggregate section 179 funding ratio for the 5,131 schemes in the PPF 7800 Index now stands at 145.8 per cent at the end of June 2023, compared to 145.1 per cent at the end of May 2023.
“For schemes with a funding surplus, focus has naturally been on how to lock in these gains, with many considering securing members’ benefits through an insurance buy-in or buyout. However, with many schemes ahead of schedule when it comes to their de-risking journey, the market is experiencing unprecedented high levels of demand. This means it is crucial that trustees ensure they are sufficiently prepared to ensure they maximise value when approaching the market.
“Additionally, while some schemes with no realistic prospect of buying out in the insurance market may benefit from the potential creation of a new permanent superfund regulatory regime, as announced via a Consultation published by the UK Government today, insurance via bulk annuities remains the ‘gold standard’ for most schemes when it comes to de-risking and maximising member security.”
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