The funding position of a fully hedged defined benefit (DB) pension scheme improved during February, as falling gilt yields boosted liabilities and highlighted the benefits of hedging strategies, according to Broadstone's Sirius Index.

The latest update revealed that the funding level of a fully hedged scheme rose by 1.1 percentage points over the month, increasing from 71.8 per cent at the end of January to 72.9 per cent at the end of February.

This represented the scheme’s strongest funding position since September 2022.

By contrast, a 50 per cent hedged scheme saw its funding level fall slightly from 108.9 per cent to 108.7 per cent over the same period, although this remained broadly consistent with levels seen at the start of the year.

Broadstone said the divergence reflected the impact of falling gilt yields during February, which improved the position of schemes with higher levels of liability hedging.

Broadstone head of trustee services, Chris Rice, added that many DB schemes currently remained well-positioned following improved market conditions and increased hedging in recent years.

“Many DB schemes are in a strong position following increasingly hedged strategies and positive returns on growth assets over the last year or two,” he stated.

However, he warned that geopolitical risks could still create volatility for pension schemes and their investment strategies.

“The instability in the Middle East casts a shadow over investment strategies and outcomes presently,” Rice noted.

“The turbulence has the potential to be a roller coaster ride on financial markets, so schemes and their trustees should make sure they have their investments well managed to protect their funding positions.”

The Broadstone Sirius Index monitors how schemes with different levels of hedging are progressing towards long-term funding targets, including self-sufficiency, providing a snapshot of how funding levels respond to market conditions over time.

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