The market value of private sector, funded occupational defined benefit (DB) and hybrid schemes fell by £39bn (3 per cent) to £1.23trn in the fourth quarter of 2022, data from the Office for National Statistics (ONS) has revealed.

These schemes’ assets, excluding derivatives, declined by £118bn (8 per cent) during the quarter, continuing the trend of falling assets in the previous three quarters.

The fall in assets was partly offset by non-pension entitlement liabilities decreasing by £59bn (26 per cent) and the negative net derivatives balance reducing by £30bn over Q4.

The ONS stated that the movements in private sector DB and hybrid assets, liabilities and derivatives suggested that schemes deleveraged, likely in response to rises in gilt yields in late September to early October 2022.

Rising gilt yields during this time was partly reflected in private sector DB and hybrid liability-driven investment (LDI) pooled fund holdings increasing by £33bn (25 per cent) in Q4.

The ONS noted that estimates from Q4 may suggest a divergence in LDI strategy response between single pension scheme LDI and LDI pooled funds.

Across the whole of 2022, the market value of private sector DB and hybrid schemes fell by £591bn (32 per cent), while the market value of public sector DB and hybrid schemes and private sector defined contribution (DC) schemes fell by £50bn (7 per cent).

This difference in market value reductions was mostly due to private sector DB and hybrid schemes having a greater exposure to gilts, the ONS explained.

In Q4, the market value of public sector DB and hybrid schemes and private sector DC schemes increased by £18bn to £701bn.

Private sector pension schemes’ holdings of central government and corporate bonds fell by £29bn (7 per cent) and £18bn (15 per cent) over the quarter, respectively, continuing the trend of decreasing long-term debt securities holdings in 2022.

“It is likely that the change in private sector bond holdings between 30 September and 31 December 2022 is from selling these assets,” the ONS said.

“Bond markets experienced a positive quarter, meaning the value of holdings might otherwise have been expected to increase.

“A pension scheme may sell these assets to raise the cash to pay off liabilities from borrowing (repos). Private sector schemes may also have further sold assets, including bonds, to fulfil its remaining collateral call obligations on LDI-related investments.”

Commenting on the figures, LCP partner, Steve Webb, said: “DB pension schemes have emerged from the turmoil of the last 12 months in remarkably good shape.

"The latest ONS figures show only a very modest fall in the value of schemes between Q3 and Q4 last year, which can be set against the huge improvements in scheme funding which we have seen in recent years.

"This shows the robustness of DB pensions and their underlying financial management, which is particularly remarkable given the turmoil all around."

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