Pensions - Articles - Aviva Investors comments on today's PPF funding update


Boris Mikhailov, Investment Strategist, Global Investment Solutions at Aviva Investors comments on the latest figures:

 “It comes as no surprise that the deficit has increased over the period due to the Bank of England’s actions at the start of August, cutting the base rate and extending the Quantitative Easing programme which pushed the long dated gilt yields down. As a result most pension schemes’ assets lacked pace and did not increase in value by as much as their liabilities. This is due to their under hedged position in rates which continue to drive deficits up as yields fall.
 
 “This once again highlights the impact that changes in gilt yields have on pension schemes’ funding positions and reinforces the need to have a robust and adequate hedging strategy in place. The full extent of this short position will be acutely felt by many pension schemes come their tri-annual Actuarial Valuations later in September. By taking disproportionately large short position in interest rates it also dwarfs the impact of any other investment decision pension a scheme makes, however good these decisions might be.
 
 “However, it is never too late to act and to review how much interest rate risk is taken and decide on the most effective way of managing it. It could be managed in a number of ways and there are now techniques and tools available to cater for schemes of all shapes and sizes. A range of assets and strategies, not just limited to ‘traditional’ LDI approach can be deployed to get this risk under control.”
  

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