The negative market reaction to last week’s ‘mini’ budget is impacting both DB and DC pension schemes.
One of the biggest impact has come from the surge in gilt yields, which is likely to have a positive impact on the funding levels of many DB schemes.
XPS Pensions chief investment officer Simeon Willis says: “The unprecedented surge in gilt yields this morning on top of those seen on Friday will have improved UK pension scheme funding levels by a greater quantum than a whole year’s deficit removal contributions.
“Market conditions are changing at pace and the factors that influence them stretch far beyond the pensions industry.”
He adds: “We are starting to see liability driven investment (LDI) managers flag new emergency collateral calls, a trend that is likely to continue in the coming days. Agility is key, and schemes should be braced as we move to a new market environment. Without fail, schemes using LDI should review their plans and assess whether further action is required to maintain a diverse portfolio, be ready for any further LDI collateral calls and maintain – or even increase – hedging to lock in these improvements.”
Meanwhile fund valuations in the DC sector have been hit by more stock market volatility, amid fears of higher interest rates and inflation, with the FTSE sliding below 7,000 at one point.
Pensions experts said that this should not unduly worry younger savers due to the longer-term nature of these investments, but said ongoing market volatility could prove difficult for older savers, particularly those who are drawing down income from their pension scheme.
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