UK defined benefit (DB) funding levels improved significantly in November, driven by a 0.3 percentage point drop in long-term gilts, analysis from Broadstone has revealed.

The Broadstone Sirius Index, which acts as a monitor of how pension scheme strategies are performing on their journeys to self-sufficiency, showed that the funding level for the fully hedged scheme increased by 1.5 percentage points, up from 67.2 per cent to 68.7 per cent.

The half-hedged scheme also saw funding increases through the month but at a slower pace, as funding improved from 97.7 per cent to 98.3 per cent as the scheme once again nears self sufficiency.

Broadstone highlighted the latest improvements as evidence that hedging strategies are beginning to "bear fruit", following a drop in long-term gilt yields and rising growth assets.

Broadstone head of trustee services, Chris Rice, said: "As we near the end of the year, a changing macroeconomic environment accompanied by a fall in rate expectations has reminded trustees why they hedge these risks.

“Rising growth assets in November caused a funding level improvement in both of our model schemes. However, a relatively sharp drop in long-term gilt yields protected the fully hedged scheme from rising liabilities to register a one and a half percentage point increase in funding, a larger rise than the half-hedged scheme.

“The movements in gilts are being driven by hopes that the worst of the inflation crisis are behind us causing interest rate expectations to fall and some economists are pencilling in rate cuts beginning next year."

However, Rice stressed that "we remain in an uncertain economic period, especially given the geo political turbulence in the Middle East and Ukraine".

"Trustees should continue to review their investment strategy to seize any opportunities to reduce volatility, while administration and data will hold the key to those looking to engage insurers," he added.

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