Defined benefit (DB) pension scheme trusteees have continued to cut scheme borrowing after gilt market volatility in 2022 triggered issues in the liability-driven investment (LDI) space, data from the Office for National Statistics (ONS) has revealed.

The updated revealed that the value of repurchase agreement (repo) liabilities fell by £27bn (18 per cent) between 31 December 2022 and 31 March 2023.

The ONS suggested that this trend was likely due to a reduction in borrowing by pension schemes given that changes in gilt prices would otherwise have been expected to increase repos over this period.

For example, between 31 December 2022 and 31 March 2023, the 10-year gilt yield fell from 3.73 per cent to 3.48 per cent, while bond (gilt) yields hold an inverse relationship to their price, meaning a decrease in yield is also an increase in price.

The ONS also found that private sector cash and cash equivalent holdings fell by £10bn (12 per cent) during Q1, suggesting that some of these holdings may have been used to pay off repo liabilities.

In addition to this, the ONS found that there were fewer swaps contracts as at 31 March 2023 than 31 December 2022, and both negative and positive swaps derivative balances fell during the first quarter, with the net swaps balance reducing by £9bn.

The ONS suggested that pension schemes may have closed derivatives contracts by settling the remaining balance and returning lower values for "in the money" and "out of the money" swaps.

It also pointed out that a pension scheme looking to reduce its segregated LDI allocation may reduce holdings of swaps contracts, along with repo liabilities.

However, whilst some schemes may be looking to cut segregated LDI allocation, the ONS found that private sector DB and hybrid LDI pooled fund holdings increased by £5bn (3 per cent) between 31 December 2022 and 31 March 2023.

The ONS suggested that this may reflect the change in interest rate environment throughout 2022 and into 2023 as well as lower borrowed exposure to gilts from repos and derivative contracts.

The impact of global interest rate changes could also be seen in scheme assets, with the ONS highlighting this as the primary factor in falls in the value of total assets for all scheme types.

Private sector defined benefit and hybrid (DBH) pension schemes have been particularly affected, as these schemes hold a higher proportion of assets that are more directly exposed to interest rate changes, such as bonds.

Direct and indirect bond holding losses account for the largest proportion of decreased holdings for private sector DBH pension schemes between 31 March 2022 and 31 December 2022.

However, a fall in the value of equity holdings was another contributor to the overall fall in the value of total assets in recent quarters, as the ONS found that private sector scheme holdings of equities have fallen in each of the last five quarters since 31 December 2021.

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