Pensions - Articles - 50 percent of hedged schemes see funding improvements

 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 finds that the 50% hedged scheme posted notable gains in April, rising by 1.6 percentage points as its funding level increased from 96.7% to 98.3%.

 Meanwhile, despite its deficit decreasing, the fully hedged scheme saw a slight deterioration of its funding position falling from 68.2% at the end of March to 67.5% at the end of April.

 Marc Devereux, Head of Investment Consulting at Broadstone, commented: "In April, we saw longer dated gilt yields rise by around 0.4% p.a., pushing closer to the highs of the last couple of years and reducing the value of liabilities and hedging assets.

 “Meanwhile global equities struggled through the month but higher quality credit spreads remained broadly stable. Overall, this is likely to mean that under-hedged schemes have seen an improvement in their funding position as liability values dropped.

 
 
 “For schemes with relatively high levels of hedging the impact on funding positions will depend on the exposure of any non-hedging assets.,” said Marc Devereux.

 “High short-term cash rates continue to present a material hurdle for non-hedging assets to cover the funding cost of any leveraged hedging exposure and generate excess returns to improve funding positions.

 “It is important that schemes monitor their strategic positioning regularly, including inflation hedge ratios which can be particularly sensitive to changes in market rates.”