The Broadstone Sirius Index shows an improvement in funding across both the fully hedged and 50 per cent hedged Defined Benefit (DB) pension scheme amid rising gilt yields for August.
According to the index, the funding level of the fully hedged scheme rose from 70.9 per cent at the end of July to 71.1 per cent at the end of August, with the deficit falling to its lowest level since tracking started at the beginning of 2022.
Funding gains were larger for the 50 per cent hedged scheme due to the underhedged position going from 107.2 per cent at the end of July to 109.0 per cent at the end of August. According to Broadstone, this is the highest funding level since tracking began and the greatest monthly gain of 1.8 percentage points.
Broadstone senior investment consultant Daniel Broad says: “Most Defined Benefit pension schemes continued their positive funding level progress in August, with particularly impressive gains made by schemes that are not fully hedged.
“During the month, medium and long-term UK gilt yields experienced a notable increase, driven by heightened investor concerns over government borrowing and persistent inflation, alongside structurally lower demand from traditional buyers.
“When gilt yields are more volatile, a scheme’s liability hedge ratio may deviate from its target and introduce unwanted risk. Therefore, we suggest schemes rebalance as required and be prepared for capital calls from LDI de-leveraging events.”
