UK pensions may struggle to capitalise on fully funded status

Bond yield spike reduced liabilities, but schemes need to sell illiquids at markdown to offload risk

Despite the difficulties of last week’s UK collateral crunch – when pensions rushed to sell government bonds, or gilts, to meet margin calls – many of the country’s retirement schemes now find themselves in the surprising position of being fully funded.

Because pension liabilities move in inverse proportion to gilt yields, the collapse in the price of government bonds raised the funding status of some schemes to above 100%. This means the pensions’ assets now fully cover the schemes’