Half-hedged scheme funding improves following rise in gilt yields

Fully hedged scheme funding has been on the decline over the past month, whilst half-hedged scheme funding improved notably from 96.7 per cent to 98.3 per cent, Broadstone’s Sirius Index has revealed.

The index, which monitors how various pension scheme strategies are performing on their journey to self-sufficiency, found that, despite its deficit decreasing, the fully hedged scheme saw a slight deterioration of its funding position, falling from 68.2 per cent at the end of March to 67.5 per cent at the end of April.

Commenting on the findings, Broadstone head of investment consulting, Marc Devereux, stressed the need for schemes to monitor their strategic positioning regularly, including inflation hedge ratios which can be particularly sensitive to changes in market rates.

He stated: "In April, we saw longer dated gilt yields rise by around 0.4 per cent p.a., pushing closer to the highs of the last couple of years and reducing the value of liabilities and hedging assets.

“Meanwhile global equities struggled through the month but higher quality credit spreads remained broadly stable. Overall, this is likely to mean that under-hedged schemes have seen an improvement in their funding position as liability values dropped.

“For schemes with relatively high levels of hedging the impact on funding positions will depend on the exposure of any non-hedging assets.

“High short-term cash rates continue to present a material hurdle for non-hedging assets to cover the funding cost of any leveraged hedging exposure and generate excess returns to improve funding positions."



Share Story:

Recent Stories


Closing the gender pension gap
Laura Blows discusses the gender pension gap with Scottish Widows head of workplace strategic relationships, Jill Henderson, in our latest Pensions Age video interview

Endgames and LDI: Lessons to be learnt
At the PLSA Annual Conference, Laura Blows spoke to State Street Global Advisors EMEA head of LDI, Jeremy Rideau, about DB endgames and LDI in the wake of the gilts crisis of two years ago

Keeping on track
In the latest Pensions Age podcast, Sophie Smith talks to Pensions Dashboards Programme (PDP) principal, Chris Curry, about the latest pensions dashboards developments, and the work still needed to stay on track
Building investments in a DC world
In the latest Pensions Age podcast, Sophie Smith talks to USS Investment Management’s head of investment product management, Naomi Clark, about the USS’ DC investments and its journey into private markets

Advertisement