LDI will have provided pension schemes with some protection after the EU referendum - says Xafinity.

As the headlines are focused on the increase in DB scheme deficits, there remains some positivity in the industry.

The majority of schemes have felt the downturn due to the historically low bond yields which lead to lower discount rates which in turn increase the value of DB pension liabilities, but this is not universally the case.

Those schemes with liability driven investments (LDI) may have reduced their deficits following the Brexit vote as recent findings have shown.

Pension schemes that have protected themselves against the fall in gilt yields by investing in LDI could have seen their deficit decrease. This is due to the LDI strategy enabling assets to increase in line with liabilities.

Some pension schemes have even seen their funding levels improve as a result of the Brexit vote, providing some welcome news to pension schemes and sponsors.

Xafinity head of investment Ben Gold said the findings show there is no uniform approach for pension investments.

He said: "LDI will have provided pension schemes with some protection against the falls in gilt yields we have seen since the Brexit vote. Indeed, because LDI assets have performed so well, many pension schemes with LDI will imminently be receiving cash payments from their LDI managers.

"Receiving these cash payments provides pension schemes with opportunities to further refine their investment strategies, particularly if their outlook or risk appetite has changed.

"We are seeing pension schemes use this money for a range of different purposes depending on factors such as their employment covenant and net cashflow position - there is no 'one size fits all' answer."

First published 14.07.2016

ceri.pugh@wilmingtonplc.com