Investment - Articles - Rising gilt yields drive drop in liabilities with funding

 The Broadstone Sirius Index – a monitor of how various pension scheme strategies are performing on their journeys to self-sufficiency – posts its latest update.

 The Broadstone Sirius Index found that the combination of rising gilt yields through May has reduced the present value of liabilities by 6% in the month.

 Our fully hedged scheme's funding position has remained steady at 70% as asset values reduced at a similar rate to the liability values - although the "pounds and pence" size of the deficit reduced by £0.2m.

 Our half hedged scheme has seen an improvement in its funding position, increasing by 2% due to better asset performance. The size of the deficit was down by over half a million.
 

 Chris Rice, Head of Trustee Services at Broadstone noted "The story for May is a compare and contrast with what happened nearly 9 months ago, though thankfully a lot less extreme in speed and extent.

 “We have seen rises in gilt yields again and the associated reduction in the present value of liabilities towards the record low values but without the huge time pressure that was affecting the process last time.

 “Schemes with leveraged hedged strategies could have experienced collateral calls of late but as the pace has been steady, albeit still quick for historic gilt yield movements, managers have been able to communicate those requirements clearly to clients.

 “This does remain a volatile period and the question for underhedged schemes would be if now is the right time to de-risk their investment strategy. With expectations of the persistent inflation falling over the year, gilt yields may yet fall back down, undoing the funding improvements.”