The average time it would take for FTSE 350 firms’ defined benefit (DB) pension schemes to reach buyout fell from 11.4 years to 10.1 years during December, according to Barnett Waddingham.

The consultancy’s DB End Gauge analysis found that the FTSE 350 DB schemes would be able to reach buyout in just over a decade, as of 31 December 2021.

This compares to 10.8 years at the end of October 2021 and 11.4 years at the end of November 2021.

Barnett Waddingham attributed the swing in buyout timelines to increases in gilt and swap yields and a decrease in inflation expectations in December, which “largely offset” the deterioration in funding levels seen in October and November.

The consultancy noted that the index had been “relatively volatile” in 2021, with average buyout times ranging from 11.5 years to 9.9 years over the 12 months.

“The pendulum of the DB End Gauge has swung back to a promising position for FTSE 350 DB pension schemes, with the average scheme now on track to buyout in a decade,” commented Barnett Waddingham partner, Simon Taylor.

“The increases in gilt and swap yields and a decrease in inflation expectations in December have offset the worsening in funding levels seen in October and November, which had pushed the average time to buyout up to around 11.4 years.

“This swing is evidence of the fact that small changes in key financial indicators can have a big impact. It is also a welcome reminder for those managing DB schemes to be astute in their reading of financial markets – there is a lot of noise around short-term high inflation and imminent base rate rises, but long-term inflation expectations actually decreased in December.

“As with all investments, it is important to take a long-term view; whilst it is vital to monitor movements in funding levels, journey plans should not deviate unless there is evidence of a fundamental change.”

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