FTSE 350 pension schemes’ average time to buyout falls to 7.2 years

FTSE 350 companies’ defined benefit (DB) pension schemes’ average time to buyout fell by a year and a month over June 2022 to a historic low of 7.2 years, according to Barnett Waddingham’s DB End Guage analysis.

This is the lowest figure recorded by Barnett Waddingham’s analysis, which was launched in December 2020.

June’s decline in time to buyout was driven by an increase in gilt and swap yields, increasing credit spreads, and a drop in long-term inflation expectations.

These factors offset the effect of poor asset returns over the month.

Barnett Waddingham’s analysis showed that the time to buyout has fallen every month since the end of February, with a total reduction of nearly three years and five months over that time.

“There was another significant fall in the time to buyout for the FTE 350 DB pension schemes in June, with increasing bond yields and a drop in long-term inflation expectations reducing liability values,” explained Barnett Waddingham partner, Simon Taylor.

“This more than offset the impact of falling asset values during a poor month for investment markets.

“As a result of this, an insurance transaction might be within reach for a lot of schemes, so companies should be keeping a close eye on their scheme’s funding level.

“Investment strategies should also be kept under close review to ensure that the level of risk remains appropriate given the significant funding level improvements. A robust monitoring framework will ensure that companies keep on top of these issues during times of considerable change.

“The improvement in funding positions might also be an opportunity to review any contribution commitments from the company. While in many cases contributions will be a necessary lever to close the gap to endgame, companies should be alert to the very real possibility of a trapped surplus if funding level improvements continue.”

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