Both fully hedged and 50 per cent hedged defined benefit (DB) pension schemes saw small improvements in their funding levels and reduced their deficits amid continued market stability in January, according to the latest Broadstone Sirius Index.

The index, which acts as a monitor of how pension scheme strategies are performing on their journeys to self-sufficiency, showed that the momentum seen amongst half-hedged schemes over the past year has continued, as low dependency funding rose from 80 per cent at the beginning of 2022 to 96 per cent in January 2023.

Furthermore, although fully hedged schemes had seen a 9 percentage point drop during 2022, the index showed revealed that these schemes have since seen a positive recovery in January.

More broadly, the index also showed that liability reductions have far outpaced falls in asset values.

A 50 per cent hedged scheme, for instance, which had £40m of assets as at January 2022, would have seen that value drop to £30m as at February 2023.

However, the analysis showed that the £50m of liabilities have outpaced this decline, falling to £31m over the same period and resulting in the dramatically smaller deficits recently seen.

Commenting on the latest update, Broadstone head of consulting & actuarial, Nigel Jones, stated: “The start of the year has been a quiet one with little volatility in funding positions. This is good news for schemes still taking stock from last year.

“The outlook for the UK economy remains unclear. Last week’s interest rate rise shows that the Bank of England is still concerned about the impact and pace of inflation as well as the UK’s recovery from the shocks of 2022.

“This rate rise was expected and long-dated gilt yields appear to be falling ever so slightly. We will continue to monitor this and report with future versions of the Broadstone Sirius Index.

“The release of The Pensions Regulator’s (TPR) Funding Code reiterated the importance of our low dependency measure of funding as the long-term target for trustees as they manage down the risk in their defined benefit scheme.

"We are working on further enhancements to the Index to ensure it matches TPR’s expectations and helps our clients set the appropriate strategies for their funding journey.”

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