The average time to buyout of defined benefit (DB) pension plans from FTSE 350 companies fell by one year and one month in June 2022 to an all-time low of 7.2 years, according to DB End Guage analysis by Barnett Waddingham.
This is the lowest figure recorded by Barnett Waddingham’s analysis, launched in December 2020.
The drop in redemption lag in June was driven by higher gilt and swap yields, higher credit spreads and lower long-term inflation expectations.
These factors offset the effect of weak asset returns over the month.
Barnett Waddingham’s analysis showed that the time to buyback has shrunk every month since late February, with a total reduction of almost three years and five months over that period.
“There was another significant drop in redemption time for FTE 350 DB pension plans in June, with rising bond yields and falling long-term inflation expectations reducing liability values,” explained Barnett Waddingham’s partner, Simon Taylor.
“This more than offset the impact of falling asset values in a poor month for investment markets.
“As a result, an insurance transaction may be within reach of many plans, so companies need to keep a close eye on their plan’s level of funding.
“Investment strategies also need to be closely monitored to ensure that the level of risk remains appropriate given the significant improvements in the level of funding. A robust monitoring framework will ensure that companies remain aware of these issues during the periods of considerable change.
“Improving funding positions could also be an opportunity to revisit any company contribution commitments. While in many cases contributions will be a necessary lever to close the gap until the end of the game. , companies should be aware of the very real possibility of a trapped surplus if funding level improvements continue.