UK pensions face 10% funding hit

Pension liabilities at UK pension funds will probably increase by 8-10%, decreasing funding levels by 10% depending on the level of liability hedging. The warning came from Russell Investments head of client strategy and research, David Rae.

Rae said that asset returns have been affected by falls in risk assets on a global basis and that Gilt markets are now pricing in heightened political and economic uncertainty, as well as the possibility of further monetary policy stimulus. Rae commented: “For schemes reviewing their balance sheets, the key things to focus on will be the impact on the sponsor covenant of the increased uncertainty, the key risks, both liability valuation risks and asset risks, and the changing nature of opportunities as markets move away from the fundamental realities.”