UK defined benefit schemes saw a deterioration in their funding positions over August, according to the latest data from the Broadstone Sirius Index.

Broadstone’s Sirius index, which acts as a monitor of how defined benefit (DB) pension scheme strategies are performing on their journeys to self-sufficiency, showed that the 50 per cent-hedged scheme initially saw continued, steady funding improvements in the first part of August, and became the closest to fully funded status since Broadstone began tracking schemes at the start of 2022.

After reaching an average 99.9 per cent of their full funded positions however, they dropped back to a 97.4 per cent level. In July, they posted a 98.2 per cent funding level.

Similarly, the index's fully hedged scheme’s funding position dropped from 69.8 per cent at the end of July, to 68.6 per cent at the end of August.

The latest results reflect the continued volatility that DB trustees are having to navigate at present.

In 2022, both types of scheme tracked by the index started the year at an 80 percent funding level, but the scheme with only 50 per cent of liabilities hedged ended the year at a 95 per cent funding level compared with a 71 per cent level for the fully hedged scheme’s funding position.

Earlier this year, after a dramatic May, during which there was large rise in yields, schemes experienced a quieter June. And in August, gilt yields again rose through the first half of the month to a 15-year high.

Broadstone head of trustee services, Chris Rice, said that the gilt yield spike last month coincided with the index's half-hedged scheme becoming as close to full funding since Broadstone began tracking funding performance.

“The market reaction came amid fears of a longer-than-expected high interest rate environment, and the economic impact that this could bring," explained Rice.

"If expectations of prolonged high inflation are true, the present value of the liabilities will soon begin to creep up."

“Trustees should be discussing the possibility of higher-than-expected inflation with their scheme actuary, both in terms of its impact on funding as well as member benefit calculations,” he added.

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