It is no secret that, much like advent calendars, defined benefit (DB) pension provision’s days are numbered. I apologise immediately for that terrible line, but it doesn’t change the fact that more often than not, reporting on DB schemes these days makes for depressing reading.
I was therefore delighted to receive a bit of festive cheer in my inbox this week in the unlikely form of Aon Hewitt’s third annual UK Pension Scheme Triggers survey. The study of 120 UK schemes – all of which have triggers in place to monitor either scheme funding levels or bond yields – revealed a number of reasons to be cheerful.
Funding levels improved significantly during the second and third quarters of 2013, with more than 40% of schemes surveyed seeing their triggers activated by improving investment returns. These market dynamics enabled many schemes to recover some of the losses incurred throughout 2012 and early 2013.
In a trend likely to be replicated by credit card statements up and down the land in the New Year, the consultant’s Pension Risk Tracker shows that at the beginning of January 2013, the FTSE 350 pension scheme collective deficit stood at over £400bn, due to a combination of successive months of low gilt yields following quantitative easing, combined with limited returns from growth assets. By early December 2013, however, the collective deficit had reduced significantly to well under £300bn.
As 2013 came to a close, UK schemes began to benefit from increasing gilt yields while growth assets in their portfolios also performed strongly. For many pension schemes, this has allowed them to recover their funding positions and to start to consider opportunities for de-risking their investment strategy.
For those of you who are well and truly fed up with all Christmas and the commercial baggage that comes with it, perhaps it’s worth noting that tomorrow is also the winter solstice, the shortest day of the year. From Sunday, the days will slowly but surely grow longer, hinting at the arrival of spring and a renewed sense of growth.
In much the same way, perhaps DB pension funds have overcome the darkest days of winter and can begin at last to look forward to brighter days ahead.
The portfolio institutional team would like to wish all Friday View readers a happy Christmas and a prosperous 2014. See you in January!
Comments