Agility 'key' for pension schemes amid surge in gilt yields

Pension scheme trustees have been urged to “brace” for a new market environment, after an “unprecedented surge” in gilt yields, which is expected to have significantly improve defined benefit (DB) pension scheme funding levels.

UK 10-year gilt yields passed 4 per cent today (26 September), having also previously increased to just over 3.8 per cent before the Chancellor stood up to deliver his mini-Budget, followed by further increases amid market reaction.

Industry experts previously suggested that the high levels of government borrowing announced in the mini-Budget could drive up interest rates and reduce DB pension deficits, urging trustees to lock in financial gains while they could.

XPS Pensions chief investment officer, Simeon Willis, also noted that the “unprecedented surge” in gilt yields seen since will have improved UK pension scheme funding levels by “a greater quantum than a whole year’s deficit removal contributions”.

However, Willis warned that market conditions are changing "at pace", with the factors influencing them streching "far beyond the pensions industry".

“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," he explained.

"Agility is key, and schemes should be braced as we move to a new market environment."

In light of this, Willis suggested that 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.

The Pensions Regulator lead investment consultant, Fred Berry, also previously warned trustees to remain vigilant to investment risk earlier this year, amid concerns that some schemes may be under-prepared for LDI collateral calls, after "years of falling interest rates in which LDI funds were paying collateral back to schemes".

    Share Story:

Recent Stories


Are current roads into retirement delivering member value?
Laura Blows explores HSBC Master Trust’s recent report, Converting pension pots into incomes, with HSBC Retirement Services CEO, Alison Hatcher.

Savings and finance at retirement
Laura Blows is joined by Claire Felgate, Head of Global Consultant Relations, UK, at BlackRock, to discuss savings and finance at retirement. Please click here for an edited write-up of the video

Making pension engagement enjoyable through technology
Laura Blows speaks to Nick Hall, business development director and Chartered Financial Planner at UK-based Wealth Wizards about the opportunities that technology provides for increasing people’s engagement with pensions and increasing their retirement wealth. Please click here for an edited write-up of the video

Pension portfolios – the role of asset-backed securities
Laura Blows is joined by Royal London Asset Management (RLAM) head of sterling credit research, Martin Foden, and its Senior Fund Manager, Shalin Shah to discuss the role of asset-backed securities (ABS) within pension fund portfolios
Incorporating ESG into fixed income
Laura Blows is joined by TCW head of fixed income ESG, Jamie Franco, to discuss incorporating environmental, social and governance (ESG) strategies into fixed income portfolios