The overall funding level of UK pension plans remained roughly steady at 104 per cent on a long-term target basis in the first month of 2023, according to XPS Pensions Group
Long-term inflation expectations falling by 0.1 per cent over the month largely offset a decrease in gilt yields of 0.25 per cent during January and the resulting increase in liabilities.
The impact of declining gilt yields was further mitigated by the robust performance of the global equity markets, reducing credit spreads, and favourable returns on the corporate bond markets, so funding levels remained mostly steady during the time.
The financing situations of UK pension systems as of the first month of 2023 have decreased by about £4 billion in comparison to long-term funding targets.
The combined funding level of UK pension systems on a long-term target basis was 104 per cent as of January 31, 2023, based on assets of £1,490bn and liabilities of £1,434bn.
In line with the sharp increase in gilt yields and the improved financing circumstances, analysis from XPS’s DB:UK funding tracker also reveals that DB scheme durations have decreased dramatically over 2022, from 19 to 15 years. Trustees must take into account this fall in durations when making travel plans in light of The Pension Regulator’s recent publication of its draught funding code.
XPS Pensions Group senior consultant Charlotte Jones says: “Schemes fared well against their long-term targets in 2022, withstanding market volatility and gaining from partially unhedged positions against interest rates.
“Trustees of all schemes should now be looking to this period of relative calm as a great time to re-assess their investment strategies, including the opportunity to de-risk and lock in some of the gains made during 2022 through full or partial buy-ins.”