Funding Level Tracker

The chart below shows the change in gilt-based funding for the average pension scheme. We use annual defined benefit asset and liability values from the Pension Protection Fund’s Purple Book1. Between these updates, our Global Investment Solutions Team estimates how funding levels have changed each month.

  • Changes in asset values are based on values for market indices that represent the average pension scheme asset allocation
  • Changes in liability values are based on yields on gilts that are similar to a typical scheme’s liabilities.

For more information, please contact our Fiduciary Managment team.

Market Commentary

Donald Trump's surprise election as US president and better-than-expected UK economic news helped pension scheme funding levels to continue their bounce back in the quarter to December. They had been hit following the Brexit vote in June when the Bank of England cut interest rates to historic lows, sending scheme liabilities higher. Interest rate expectations have since risen again and pension liabilities fallen back. Markets now expect US and UK interest rates to rise faster than previously expected. Fiscal stimulus, including infrastructure spending and tax cuts, is likely to take over somewhat from ultra-low interest rates in stimulating economic growth. Asset values were more stable than liabilities in the last quarter, so the fall in liabilities drove funding levels higher. A fall in gilt yields, partly over uncertainty surrounding the UK's Brexit strategy, hit funding levels at the end of the year.

Sources for funding level estimates, total asset and liability values (buyout basis) and average asset allocation: Pension Protection Fund as of 31 March each year (to March 2016). Interim asset returns: Barclays, FTSE, MSCI, HFRI and IPD as at 31 December 2016 (all sourced through Bloomberg); gilt yields: Bank of England as of 31 December 2016.

1 www.pensionprotectionfund.org.uk/Pages/ThePurpleBook.aspx