The average time to buyout for FTSE 350 defined benefit (DB) pension schemes in the UK fell by nine months over March 2022 to nine years and nine months, Barnett Waddingham has revealed.

Its DB End Gauge analysis found that the average time to buyout had fallen to a 12-month low.

The decrease follows successive rises over January and February 2022, when a six-month increase during this period left the average time to buyout at 10 years and six months at the end of February.

March’s fall was attributed to an increase in gilt and swap yields over the month, which reduced the value placed on FTSE 350 schemes’ liabilities.

However, the improvement in funding position was partially offset by a fall in total asset values and an increase in expectations of future inflation.

“Short-term inflation continued to rise during March, with the UK CPI inflation rate hitting a 30-year high of 7 per cent,” commented Barnett Waddingham partner, Simon Taylor.

“However, long-term expectations of future inflation remained broadly stable and so had little impact on the index.

“Short-term high inflation does, however, accelerate the expected pace of monetary tightening needed to keep this under control. The Bank of England raised the base rate to 0.75 per cent in March and markets now expect the base rate to rise at least 2 per cent by the end of 2022.

“Thus far, expectations of tighter policy have had a positive impact on the index, fuelling a rise in gilt yields and decreasing the FTSE 350’s total DB liabilities by around 3 per cent.

“However, it's a delicate balancing act and the major risk remains a policy error in which central banks tighten policy either too slowly, allowing inflation to remain elevated, or too quickly, risking a recession.

“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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