Pensions - Articles - Pension surpluses rise on the back of sharp gilt yield rises


XPS Pensions Group estimates that the aggregate surplus of UK pension schemes has risen over May to £110bn. A significant rise in long-term gilt yields of 0.5% over the month led to a decrease in the value of liabilities, improving the funding level of schemes. Meanwhile, aggregate scheme assets fell over the month, driven by schemes’ hedged investment strategies as well as in schemes’ other invested assets which have all fallen over the month.

 Across May 2023, UK pension schemes’ funding positions have improved by c.£40bn against long-term funding targets. Based on assets of £1,393bn and liabilities of £1,283bn, the aggregate funding level of UK pension schemes on a long-term target basis was 109% as of 30 May 2023.

 

 Felix Currell, Senior Consultant at XPS Pension Group said: “Long-term gilt yields have continued to rise across May, particularly following the latest UK inflation figures and the market’s swift reaction to them. This has led to most LDI managers starting to call for additional capital to support their leveraged pooled funds. However, reduced leverage and greater operational robustness following regulatory guidance means there is a clear distinction between these capital calls and the panic observed during the 2022 gilts crisis. So far, we have seen manageable calls and a smoother process being followed by the managers than last Autumn.

 Of course, whilst long-term yields have started to approach levels seen during the crisis, they still remain below the peaks of the crisis and crucially the rise has not been as rapid. Whilst we would have expected LDI managers to hold up better under the current environment, it’s comforting to witness a smoother approach play out in practice. This will continue to be put to the test as gilt yields are generally expected to remain volatile whilst uncertainty around inflation persists, and schemes heavily invested in illiquid assets may again need to start thinking about the role of these assets alongside their hedging strategy.”
  

Back to Index


Similar News to this Story

Wish list for the occupational pensions industry in 2025
As one year closes and another begins, it's an opportune moment to set our sights on the future. The UK occupational pensions industry faces nume
PSIG announces outcome of Consultation
The Pensions Scams Industry Group (PSIG), which was established in 2014 to help protect pension scheme members from scams, today announced the feedbac
Transfer values fell to a 12 month low during November
XPS Group’s Transfer Value Index reached a 12-month low, dropping to £151,000 during November 2024 before then recovering to its previous month-end po

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.