Pension schemes in ‘robust position’ to deal with market fluctuations
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Pension schemes are in a “robust position” to deal with market fluctuations, an industry body has said. The pound fell to a fresh 14-month low on Monday, while UK government bonds, also known as gilts, continued to see 10-year yields hit highs not seen since 2008.
Yields are a key indicator of market confidence, moving inversely to bond prices. Overall, DB (defined benefit) pension schemes are currently in significant funding surplus, and a robust position to deal with market fluctuations. There has been speculation over potential impacts for pensions from the gilt market rout, as well as mortgages, with comparisons being drawn with the fallout from former prime minister Liz Truss’s 2022 mini-budget when the pound was sent crashing due to an acute sell-off in gilts.
Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association (PLSA), said: “We are not experiencing the rapid and disorderly market conditions that caused the last gilts crisis. “As gilt yields rise or fall pension funds will typically adjust their collateral holdings. Given recent rises, and in keeping with guidance from regulators following the mini-budget crisis, schemes are required to hold increased buffers to withstand market volatility – taking these steps is the prudent thing to do.
“Overall, DB (defined benefit) pension schemes are currently in significant funding surplus, and a robust position to deal with market fluctuations.”. Some other parallels are also being drawn with the impacts of the mini-budget – which could be positive for people looking to buy an annuity, which guarantees an income in retirement.
