Value of private pension schemes in the UK suffer double digit drop

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.

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.

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