Yahoo Finance Value of private pension schemes in the UK suffer double digit drop
The value of pensions saved in private sector schemes tumbled 12% this year amid market turmoil.
Private sector defined contribution and hybrid pension scheme assets fell by 12% from 31 March 2022 to 30 June 2022, according to the Office for National Statistics (ONS).
The ONS said that the drop was driven by falls in pooled investment vehicle holdings. In simpler terms, this all links back to so-called liability-driven investment (LDI) funds.
To avoid being exposed to market volatility, the schemes typically hedge their positions through gilt derivatives managed by LDI funds.
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If yields go up too far and too fast, the schemes need to provide more cash — or collateral — to the LDI funds because their positions become loss-making and they are paying out more money in the transaction than they are receiving.
Looking at total benefits at the end of the second quarter of the year, private sector defined contributions stood at £196bn in terms of total pooled investment vehicles — how much the assets your pension bought are worth.
This is £15bn less than in the previous three months.
The drop happened even has there are more workers paying into a private pension, with the total membership rising to 27.61 million in the second quarter from 27.40 million in the first three months of the year.
In hybrid pension schemes, assets fell from £705bn to £598bn in the span of three months.
“Private sector defined benefit and hybrid (DBH) schemes' pooled investment vehicle (PIV) holdings fell by £107bn (15%) from 31 March 2022 to 30 June 2022. In comparison, private sector defined contribution (DC) and public sector DBH schemes dropped by 7% and 6%, respectively,” the ONS said.
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UK government bonds holdings fell by over 10% for private and public sector defined benefit and hybrid pension schemes during the second quarter of the year as gilt yields rose.
The Bank of England is working with the Financial Conduct Authority and the Pensions Regulator to "ensure strengthened standards are put in place" after the sector found itself in turmoil following September’s mini-budget.
