Defined benefit (DB) pension schemes have been encouraged to consider de-risking opportunities "before they miss the boat", after long-dated gilt yields rose at the sharpest rate in almost 30 years.

XPS Pensions Group noted that 20-year gilt yields have risen by 1.3 per cent since their trough on 7 December 2021 to 19 May 2022, a rise which was last witnessed over a six-month period in 1994.

However, the firm also clarified that since the start of 2022, falls in equity markets, widening credit spreads and rising inflation expectations have muddied the water in terms of how pension schemes will have performed overall.

Indeed, its analysis revealed that impact of the increasing gilt yields will vary “significantly” for different pension schemes depending on their asset allocation.

It showed that the average UK DB scheme will have seen a funding improvement of around 5 per cent since the start of the year, whilst those with more defensive investments may have seen an improvement of up to 10 per cent.

In contrast, those with greater exposure to equities may have seen a deterioration of up to 8 per cent.

Commenting on the analysis, XPS Pensions Group chief investment officer, Simeon Willis, suggested that this "rare market event presents a fantastic opportunity for some schemes to reduce risk".

"Reducing exposure to interest rate risk through additional hedging is an obvious option," he continued.

"However, other options include insuring liabilities – which is currently attractively priced due to a competitive insurer market – or de-risking from equities into more secure income-based strategies.

“The first step for schemes is to have a clear picture of their funding position so they can seize any de-risking opportunities that the market presents before they miss the boat.”

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