Commenting on the impact on DB Pension Schemes from the increased Bank of England’s base rate announced today, Ross Fleming, Co-Head of DB Investment, Hymans Robertson, says:

“For defined benefit (DB) pension schemes the impact of any short term interest rate is unlikely to change funding ratios. However, the rise in gilt yields which are happening, will have an impact on Scheme funding. For those DB schemes that are not fully hedged against interest rate movements, this further rises in gilt yields could provide more welcome tailwinds for funding and present an opportunity to reduce risk and lock in funding gains. This increase could also have an impact on Schemes’ collateral positions, backing any interest rate protection currently in place.

“We would therefore urge DB pensions scheme trustees to consider whether this interest rate movement is an opportunity to both take further steps towards shoring up the funding position as well as checking the impact on their Scheme liquidity.”