Editor's comment: The answer may not be as simple as higher rates mean better times for UK schemes. But it cannot be much worse than the pain of the past few years.

The Royal Bank of Scotland is among those who identified lower real interest rates as the reason behind a slip in its funding level. Such a story will be familiar to many.

So managers could be forgiven for hoping that the split decision of the Bank of England monetary policy committee was, as the Financial Times branded it today, an end to the low-rate era.

But not everyone in the industry is convinced rate increases will necessarily have a positive impact. We have blogged on the appetite for floating rate assets as schemes look to protect their fixed income allocations.

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The Royal Bank of Scotland is among those who identified lower real interest rates as the reason behind a slip in its funding level. Such a story will be familiar to many.

So managers could be forgiven for hoping that the split decision of the Bank of England monetary policy committee was, as the Financial Times branded it today, an end to the low-rate era.

But not everyone in the industry is convinced rate increases will necessarily have a positive impact. We have blogged on the appetite for floating rate assets as schemes look to protect their fixed income allocations.

No surefire bets

Investment consultants over at Redington have blogged twice this month that increased rates are not a golden bullet for schemes' funding issues.

"Liabilities are very long dated, so the key factor is not today’s short-term interest rates (as dictated by the BoE) but long-term interest rates which already allow for the base rate to be increased over time," wrote Nick Lewis.

He argued that there are times when an increase in short-term rates actually leads to "long-term rates falling" as the market begins pricing in the next cycle.

As his colleague Sebastian Schulze and others have pointed out, the major factor is demand: both from overseas investors hunting value and domestic appetite from funds looking to derisk. 

In other words, by making themselves forced buyers of gilts, pension schemes have a hand in making a rod for their own back when it comes to long-term rates. 

Is there another option?

Morgan Stanley's Joe McDonnell warned this week against an mechanical equities-to-fixed income derisking strategy, given the current yield lows, arguing alternative fixed income strategies provide better value.

Bromley Pension Fund is the latest to size up illiquids as a high-yield alternative. But such strategies have their own performance, matching and of course liquidity challenges.

Reset your expectations

Some see potential for more of the same. Rob Palmer, principal consultant at Quantum Advisory, said a rise in the bank rate is unlikely to have an impact on a typical pension funding level, arguing that it would require a change in longer-term market expectations.

"The gilt market will have anticipated a base rate rise in the near future and as such the yields available on all but the shortest gilts today will already largely reflect any rate rise," he said. "For similar reasons the impact on schemes’ assets are likely to be limited."

The "new normal" of low longer-term rates, albeit with improved growth, could be the lot of scheme investors for a time yet,

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