The market value of private sector defined benefit and hybrid (DBH) pension schemes increased by 6 per cent between 30 September 2023 and 31 March 2024, data from the Office for National Statistics (ONS) has revealed.

The ONS data showed that the market value of private sector DBH pension schemes rose from £1,111bn to £1,179bn, attributing this to rises in long-term debt securities and insurance policies assets.

Indeed, the ONS found that the value of domestic long-term debt securities held by UK funded occupational pension schemes increased by £50bn in Q4 2023, compared with £1bn for overseas long-term debt securities.

Almost all private sector holdings of long-term debt securities come from private sector DBH schemes, with private sector holdings of long-term debt securities rising by 9 per cent (£44bn) during the period.

Rises in pooled investment vehicle (PIV) and equities holdings also drove up the combined market value of private sector defined contribution (DC) and public sector DBH pension schemes 13 per cent, increasing from £736bn to £830bn.

In particular, the ONS found that private sector DC scheme total assets increased by £42bn, around 17 per cent, during the period, with PIV holdings increasing by 17 per cent, or around £38bn.

In addition to this, public sector DBH scheme PIV holdings increased by £26bn between 30 September 2023 and 31 March 2024, while public sector DBH holdings of equities rose by £10bn (12 per cent).

The ONS also provided broader insight into funded pension scheme holdings, revealing that liability-driven investment (LDI) pooled holdings rose by 4 per cent, or £6bn, while repurchase agreements (repo) holdings increased by 3 per cent, around £3bn, between 30 September 2023 and 31 March 2024.

The ONS highlighted the stability of these holdings as indication that a ”new normal” level of LDI related holdings has been reached by UK funded occupational pension schemes.

It also suggested that LDI investments may now be fully adjusted to the relatively higher interest rates in the economy compared with pre-2022, and movements in gilt yields seen in Quarter 3 (July to Sept) 2022.

Alongside this, the ONS update provided information on expenses as a percentage of assets for funded occupational pension schemes for the first time.

This revealed that public sector DBH scheme expenses as a percentage of assets consistently spiked in Q1 between 2020 and 2024, with this seasonal pattern attributed to the fact that local government pension scheme investment management costs are accounted at financial year end rather than spread across the whole year.

According to the ONS, almost all local government pension schemes showed an increase in expenses during Q1, making up the majority (more than 90 per cent) of the public sector DBH universe.

Whilst the ONS found that there has been a slight rise in private sector DBH pension scheme expenses as a percentage of assets across the timeseries, it argued that this is predominantly due to a decrease in total assets for private sector DBH schemes, rather than an increase in expenses.

In contrast, private sector DC pension scheme expenses as a percentage of assets has been broadly consistent across the timeseries, with higher expenses reflecting higher total assets.

---