Have we passed the high-water mark for pension scheme funding?

News of a sharp fall in inflation this morning (to “only” 4.6% pa) will feed through to expectations of lower interest rates, lower gilt prices and higher valuations of pension scheme liabilities.

The question is whether the current balmy conditions for UK DB pension funds are likely to continue, or whether the supposed increased cost of funding  liabilities will outsrip the growth in assets needed to match them.

Many schemes will now be trusting that their LDI portfolios kick in and shield them , but not all schemes are fully hedged and many are currently sleeping rough with no hedge at all, (the roof having blown off this time last year).

If , as I suspect, the reduction in yields continues , then the plans for buy-out for many schemes with marginal surpluses will come to naught and they will be back in the hurly burly of keeping afloat.

I don’t want to be a profit of doom, but good news for Rishi Sunak and the UK economy does not look such good news for those who think their days of worrying about the pension scheme are over.

Surely it is time we took a more realistic view to pension funding and started dealing with the fundamental questions to do with the way we organise our private pensions in this country.

For more informed comment; read Con Keating below or Martin Woolf via this link

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Have we passed the high-water mark for pension scheme funding?

  1. conkeating says:

    At risk of being a spoilsport, I note that RPI is running at 11.5% and that inflation is far more entrenched in the UK than in most other developed economies.

  2. Byron McKeeby says:

    Latest RPI is “only” 6.1%.

  3. Byron McKeeby says:

    But I agree that where RPI supports annual pension increases based on the September value it was higher at 8.9% and “if” the triple lock continues then state benefits could rise by 8.5%. Where it’s CPI increases, that was 6.7%.

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