Market value of private sector DB and hybrid schemes fell by £420bn in Q2-Q3 2022

The market value of private sector defined benefit (DB) and hybrid schemes decreased from £1.7trn to £1.28trn between April and September 2022, according to data from the Office for National Statistics (ONS).

This consisted of a 15 per cent reduction, from £1.7trn to £1.45trn, in Q2, and a 12 per cent fall in Q3, from £1.45trn to £1.28trn.

The ONS stated that the fall in value over Q2 and Q3 was due to greater exposure to rising gilt yields, including through liability-driven investment (LDI).

Gilt yields rose in Q2 and Q3 2022, including the sharp increase towards the end of September, although they have fallen since.

The 10-year gilt yield rose from 1.63 per cent on 31 March 2022 to 2.29 per cent at the end of June, followed by a further increase to 4.1 per cent by the end of September, after peaking at 4.54 per cent in mid-October.

By the end of 2022, gilt yields had fallen to 3.73 per cent.

For private sector DB and hybrid schemes, the main drivers to the fall in value between 30 June and 30 September were falls in the value of direct investment assets, according to the ONS.

Additionally, the value of pooled investment vehicles fell by £71bn and the net negative derivatives balance increased by £19bn over the same period.

The combined market value of private sector defined contribution (DC) and public sector DB and hybrid schemes fell by 6 per cent in Q2 2022.

This combined value of DC and public sector DB and hybrid schemes decreased by a further 1 per cent during Q3.

The ONS also revealed that private sector pension schemes’ holdings of corporate bonds and equities fell by 21 per cent and 19 per cent, respectively, in Q3 2022.

Corporate bond holdings by private sector schemes fell by £14bn in Q2 and by £31bn in Q3 due to changes in bond prices and the volume of bonds held by schemes.

Meanwhile, as global stock markets performed poorly during Q2, private sector pension schemes’ holding of equities fell by £15bn in Q2 and by £17bn in Q3.

Public sector pension schemes’ holding of equities declined by £9bn in Q2 and by £2bn in Q3.

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