Current high levels of inflation might throw DB Pension Schemes’ endgame strategy off course, Hymans Robertson has warned.
High inflation levels could knock DB Pension Schemes’ endgame strategies off track unless trustees and sponsoring businesses ensure that they understand the impact of inflation on their portfolios and the financial implications this may have, according to Hymans Robertson.
Hymans Robertson head of corporate DB endgame strategy Leonard Bowman says: “Inflation is making headlines with UK inflation at its highest rate in 30 years and US inflation at its highest level in over 40 years. This increase in prices is likely to be further exacerbated by the Ukraine invasion and the resulting inflationary impact of the crisis.
“Not only will this add growing pressure on the cost of living and lead to an expected increase in interest rates throughout 2022, this level of inflation could dramatically shift the UK pensions investment landscape.
“The impact of high inflation on the financial management of a DB Pension Scheme can be complex and if this is not properly understood and acted upon then endgame strategies designed to secure members’ benefits may be knocked off track, meaning higher costs and longer timeframes before financial targets are achieved.”
Hymans Robertson co-head of DB investment Ross Fleming says: “With Chancellor’s Spring Statement taking place against a backdrop of a higher-than-expected inflation rate, it is vital that DB Trustees ensure that they fully understand the potential impact of inflation on their Scheme. This will provide enough time to allow for a review of the Scheme’s approach to inflation hedging, or assessment of how to position its asset strategy to guard against persistently high inflation before it becomes too late.
“As we have emerged from the Covid-19 pandemic the ongoing recovery has led to a significant increase in inflation across the world. This compiled with the ongoing war in Ukraine, a drive towards responsible investment and ongoing volatility in energy prices has created a unique environment that schemes must be prepared for.”