A fall in gilt yields over the past month resulted in contrasting funding movements between fully hedged and half-hedged defined benefit (DB) pension schemes, Broadstone's Sirius Index has revealed, although funding levels have broadly "held up" ahead of the Budget.

The index highlighted the benefits of hedging over the past month, as the funding level of the fully hedged scheme rose from 71.6 per cent at the end of August to 72.5 per cent at the end of September.

This continued the trend of month-on-month funding improvements and deficit reductions seen since the end of April.

In contrast, the 50 per hedged scheme failed to make progress for the first time in six months, as the funding level fell from 109.7 per cent at the end of September to 109.1 per cent at the end of October as growth asset returns failed to match the liability increase coming from falling gilt yields.

Broadstone head of trustee services, Christopher Rice, highlighted the findings as a reminder to trustees and sponsors to ensure they understand the risks they are exposed to and look to remove risk where funding allows, especially as they look ahead to what could be a volatile month for markets in November.

"It is encouraging that with speculation rife on the impact of the Budget on inflation, interest rates and the economy more generally, DB scheme funding has held up," he stated.

“The benefits of a well-hedged scheme shone through in October as the fully hedged scheme’s funding performed better than the 50 per cent hedged scheme." 

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