Average time to buyout for FTSE 350 DB schemes falls to new low

The average time to buyout for FTSE 350 defined benefit (DB) pension schemes has fallen by three months to 9.7 years, according to Barnett Waddingham’s DB End Gauge analysis, marking the lowest figure since the gauge was launched in December 2020.

The fall was attributed to an increase in gilt and swap yields, which reduced overall liability values, although Barnett Waddingham noted that the improvement in funding positions was “somewhat” moderated by a fall in total asset values and rising inflation expectations.

Furthermore, whilst this continues the downward trend seen in March 2022, when the index dropped by 8 months, the analysis also previously showed a six-month rise over January and February 2022.

Commenting on the figures, Barnett Waddingham partner, Simon Taylor, suggested that the coming months could "prove pivotal from an endgame planning perspective", encouraging trustees to keep DB scheme strategies under "careful review" amid market volatility.

“Up until now, the funding position of FTSE 350 DB pension schemes has improved despite a backdrop of rising short-term inflation," he stated.

"However, market volatility triggered by the war in Ukraine and a more bearish outlook from the Bank of England are calling the sustainability of this position into question.

“So far, expectations of tighter monetary policy have had a positive impact on the index, contributing to a rise in long-term gilt and swap yields, and decreasing the FTSE 350’s total DB liabilities. This has brought the DB End Gauge index to a new low at 9.7 years."

However, Taylor clarified that, given the "significant uncertainty" in financial markets, and the Bank of England’s warning of a UK recession, DB scheme strategies should be kept under careful review, emphasising that the impact of potential economic scenarios should be considered to ensure that risk is managed appropriately.

“Scheme sponsors may also want to take advantage of the improvement in funding positions to further reduce risk in their scheme," he added.

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