Jessica BirdRecord high gilt yields have driven improvements in defined benefit (DB) pension scheme funding positions in August, according to the latest Broadstone Sirius Index.
The funding level of the fully hedged scheme rose from 70.9% at the end of July to 71.1% at the end of August, with the deficit falling to its lowest level since tracking began in early 2022.
Gains were even greater for the 50% hedged scheme, which increased from 107.2% at the end of July to 109.0% at the end of August.
This was the highest funding level since tracking began and represented the largest monthly rise recorded, at 1.8 percentage points.
Daniel Broad, senior investment consultant at Broadstone, said: “Most Defined Benefit pension schemes continued their positive funding level progress in August, with particularly impressive gains made by schemes that are not fully hedged.
“During the month, medium and long-term UK gilt yields experienced a notable increase, driven by heightened investor concerns over government borrowing and persistent inflation, alongside structurally lower demand from traditional buyers.
“When gilt yields are more volatile, a scheme’s liability hedge ratio may deviate from its target and introduce unwanted risk.
“Therefore, we suggest schemes rebalance as required and be prepared for capital calls from LDI de-leveraging events.”
