National Grid has revealed that it took “strategic action” to mitigate risks associated with further increases in UK government bond yields by providing additional liquidity support to its defined benefit (DB) pension schemes.

The company’s half year accounts revealed that its pension scheme assets and liabilities had seen a "significant fall" amid the recent turbulence in UK and US Government bond yields.

According to the report, the net pensions and other post-retirement benefit obligations position as recorded under IAS 19 was a surplus of £2,635m, down from £3,075m as at 31 March 2022.

This £440m fall was primarily attributed to asset performance being less than the discount rate, although this was partially offset by changes in actuarial assumptions resulting in a decrease in liabilities and employer contributions paid over the accounting period.

Indeed, the group recorded a net actuarial loss of £631m, with a loss of £6,137m relating to asset performance, which reflects returns on assets, both in the UK and US, being less than the discount rate at the beginning of the year.

However, changes in actuarial assumptions led to a gain on liabilities of £5,649m, £3,716m of which related to the UK, primarily as a result of movements in discount rates as a result of large increases in corporate bond yields.

As well as impacting IAS 19 valuations, National Grid explained that the recent market volatility meant that UK pension schemes were required to source cash at short notice to cover collateral calls on their liability driven investment (LDI) portfolios.

The company clarified that although these short-term liquidity pressures did not materially impact the security of pension benefits, it decided to take action to mitigate any risks associated with further increases in UK Government bond yields by providing additional liquidity support.

Short-term loans totalling £325m were issued to the schemes on 19 October 2022 on normal commercial terms and will be repayable no later than 16 January 2023.

These short-term loans were provided in an effort to give the schemes additional time to liquidate assets in an efficient manner and to restore their liquidity buffers.

National Grid is not the only employer to have taken such action amid the recent volatility as Sainsbury's also revealed earlier this month that it had provided a £575m loan facility to its own DB pension scheme.

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