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Trump victory benefits DB schemes

18 November 2016

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The total UK DB scheme deficit has gone down by more than £35bn since the US election result, according to pensions specialist Hymans Robertson.

According to data from its real-time analysis, Hymans Robertson said the deficit now stands at £825bn, down £200bn from a record high of more than £1trillion in August.

The reduction is due to rising bond yields, which are due, in part, to revived inflation expectations following the policy pledges made by the President-Elect, Donald Trump.

Hymans Robertson said this could create a significant opportunity for some schemes to reduce risk.

Calum Cooper, partner at Hymans Robertson, said the "Trumpflation" effect means growth-focused assets are likely to benefit from some of Trump's unexpected policies, such as spending on infrastructure, tax cuts and trade protectionist policies.

He said: "Following a significant rally earlier this year, positions in fixed income assets have been unwinding due to emerging signals from the Federal Reserve of higher economic growth and interest rate rises."

"This has been amplified significantly by what the market has been calling the 'Trumpflation' trade."

However, Cooper urged schemes to focus on a long term approach: "If the experience of the past year, and particularly the past six months has taught us anything, it's that deficits can be extremely volatile," he said.

"These huge gyrations in headline funding figures should not knock schemes off course and a long term focus needs to be maintained through short-term political fog and uncertainty."

Hymans Robertson estimates the reduction in the deficit means some schemes could reduce their growth asset allocations by 10% or 20%.

"Even when looked at through a long-term lens, this is strategically significant," Cooper said.

"But, given this risk and opportunity, it's really important that schemes are clear on the level and types of risks they're running; whether less risk can be taken given recent yield rises; and whether component risks could be better diversified."

"Overall this should lead to increased resilience to adverse cashflow and balance sheet events," he said.

First published 18.11.2016

Lindsay.sharman@wilmingtonplc.com