Sharp-eyed pensioners were concerned when they spotted that Reuters Pension Fund assets had dropped by more than a billion pounds between 2021 and 2022. The latest accounts show a 39% drop in assets from 2.8 billion pounds to 1.7 billion.
This information is from the Reuters Pension Fund Website – Members Information – Questions and Answers. www.reuterspensionfund.co.uk/members-information/questions-and-answers
“A fall in RPF’s asset value could be concerning when viewed in isolation. However, RPF’s goal is to create an investment strategy which meets the pensions due (“liabilities”). So, we primarily focus on how the asset value compares to the measured liabilities whilst ensuring there is a sufficient level of highly liquid assets in the fund to meet ongoing cashflow requirements.
RPF uses a risk management strategy called “liability driven investment” or “LDI”, where the investment manager creates a portfolio of UK government bonds (known as “gilts”) and inflation-linked gilts which is designed to mirror the change in liabilities. This makes up a large portion of RPF’s assets. The fundamental purpose of these assets is to reduce volatility in the funding position. For example, if liabilities increase in value, we expect a corresponding increase in the value of the RPF’s LDI portfolio.
In the final quarter of 2022, we saw a significant increase in the yields of UK government bonds which reduced the value of RPF’s gilt holdings which was a primary reason for the fall in asset value. However, the rise in yields also lowered the value of the measured liabilities by a similar amount. As such, whilst there was a fall in asset value, the level of funding (assets relative to liabilities) changed only marginally. Therefore, despite the fall in the value of assets, RPF still remains in a strong position to meet the pensions it has promised to its members.
Further information on gilts can be found at United Kingdom Debt Management Office.Gov.UK: About Gilts. https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/ “