Jaime Norman, Senior Actuarial Director at leading independent consultancy Broadstone commented: “We saw a return to volatility in May with strong rises in gilt yields off the back of persistently high inflation data that reinforced the potential for further Bank of England base rate hikes. Thankfully the movements were a lot less dramatic in both speed and scope than the events of Autumn 2022.
“For DB schemes, managing this turbulence and capitalising on the increases in scheme surpluses through an insurance transaction will be front of mind. However, fear of a recession could see gilt yields fall back and un-do some of the funding improvements of the past 18 months. Speed, therefore, is all important.
“Solid administrative process and best-in-class data standards will be all-important to attracting insurer attention in a congested market. Ongoing monitoring and specialist services will also support rapid transactions in such a competitive market.
“The DB market remains the subject of much debate with market noise around the use of scheme assets and consolidators, including the potential use of the PPF as a consolidator. However, trustees should not be distracted from the basic principle that those schemes that are well governed, have good data and sound investment strategy will have the best options available to them.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “May saw little movement in the aggregate funding level of the schemes in the PPF Index, after a similar fall in both assets and liabilities. US debt ceiling negotiations may have contributed to a rise in gilt yields, but generally many DB schemes have begun June in the same healthy position and the aggregate funding ratio now rests at 145%.
“As the funding position remains broadly stable for another month, trustees may be focused on the more long-term future for their scheme. As the PPF has stressed though, a large determinant of this future is scheme size and while overall funding levels remain healthy, smaller DB schemes are still struggling. These smaller schemes also typically have fewer options available to them when it comes to the crowded and competitive buyout market.
“For these smaller schemes, the future looks less certain and there are no easy solutions. In April, the PPF itself proposed supporting further consolidation in this market. This will be a development to watch for DB scheme trustees, even as the launch of the long-expected DB Funding Code paves the way for many larger schemes to reach their endgame goals. A change in the role of the PPF could have repercussions for all DB schemes.”
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