DB schemes continue recovery, says LGIM

Defined benefit pension schemes in the UK are continuing to show recovery and have almost returned to pre-Covid levels, according to data from Legal and General Investment Management (LGIM).

Schemes can now expect to pay 95.5% of accrued pension benefits, which is just one percentage point below the pre-COVID levels of December (96.5%).

However, the financial services firm addressed potential new threats, including defined benefit pension schemes facing weakening covenants from corporate sponsors due to the continuous economic downturn.

Christopher Jeffery, Head of Rates and Inflation Strategy at LGIM,  said: “Since March, global risk assets and nominal yields have been driven higher by anticipation of an economic recovery as the world learns to cope with COVID. 

“In recent weeks, those trends have been given an additional fillip by the US election and news of a breakthrough in the search for a vaccine. As a consequence, the gilt market has downgraded the likelihood of negative interest rates from the Bank of England in 2021 and beyond.”

He added: “RPI reform is now around the corner, with an announcement pending in late November, which constitutes the next major event risk for DB schemes to navigate.”


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