Pensions - Articles - December again shows the benefits of hedging

 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 fully hedged scheme held its funding level in the face of a 0.5% decrease in long-term gilts through December as the benefits of hedging increasingly begin to emerge.

 The fully hedged scheme’s funding level increased slightly by 0.2 percentage points, rising from 68.7% to 68.9% between the end of November and end of December. However, despite the funding level improvement, the deficit increased by £0.5m following respective increases in assets and liabilities.

 The half hedged scheme did not manage to hold its funding position as liabilities increased at a faster rate than assets. This drove a funding deterioration of 2.2 percentage points and an increase in deficit of £0.7m.

 Chris Rice, Head of Trustee Services at Broadstone, commented: "November and particularly December marked a return of falling rates after sharper than expected falls in inflation and the growing expectation that the Bank of England will reduce the base rate.

 “In this context, the fully hedged scheme unsurprisingly held its position and it indicates that the benefits of hedging could become increasingly evident moving into 2024.

 “The model half hedged scheme managed to fall just short of full funding on the self- sufficiency basis during 2023. Yet with the deficit now back over £1m it goes to show the importance of monitoring schemes’ funding levels and de-risking when opportunities present themselves.

 “As we enter the new year, trustees should take the time to check their investment strategies are on the right path with potential financial volatility to come as a consequence of recessionary fears and the General Election.”