Commenting on the impact on DB Schemes of the anticipated increase in Bank of England’s base rate this week, Elaine Torry, Co-Head of DB Investment says:

“For defined benefit pension schemes the impact of any short term interest rate is unlikely to move the funding dial. However, the rise in gilt yields which are happening concurrently cannot be ignored by these schemes.

“The significant, c0.9% rise in gilt yields that has been experienced since the start of the year, will be causing a greater impact. This increase in medium and longer dated gilt yields could see liability values reduce by c15% leading to an average duration, £100m scheme facing a reduction in liabilities of c£15m as a result.

“For those DB schemes that are not fully hedged against interest rate movements, this gilt yield rise could prove a much welcome tailwind for funding and present an opportunity to reduce risk and lock in funding gains. We would urge trustees to consider whether this recent movement is an opportunity to take further steps towards shoring up the funding position and protecting their members benefits.”