DB funding levels remain 'steady' amid gilt yield rise

Fully hedged defined benefit (DB) scheme funding levels fell slightly in January, although half-hedged schemes reported a slight funding improvement, according to analysis from Broadstone.

Broadstone’s Sirius Index showed that that the fully hedged scheme lost ground in January, as its funding level fell slightly from 68.9 per cent to 68.4 per cent, after gilt yields rose around 0.3 percentage points during the month.

However, the half-hedged scheme’s funding level increased by almost a full percentage point, rising from 96.1 per cent to 97 per cent through the first month of 2024.

In a return to the rising rates experienced during 2022 and 2023, the index showed that assets and liabilities, and therefore the deficit, shrank in January, with a £0.2m funding improvement in the fully hedged scheme and a £0.3m in the half-hedged scheme.

Commenting on the update, Broadstone head of policy, David Brooks, said: "The publication of the funding regulations which will form the basis for the new funding code were recently published.

“Despite the recent rhetoric from the government about increasing risk for DB schemes, the actual direction of travel remains clear for many schemes. The focus of the regulations, and our index, is the journey to low dependency where risks in funding, investment and covenant are properly understood and controlled.

“Importantly for some schemes, where there is a deficit there will be pressure to improve the scheme’s financial security which could mean an increase in contributions for sponsors.

“One important fall-out from the new regulations and code will be more work for schemes when conducting their valuation - for those schemes in a strong position, the value of this may be hard to understand.”

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