Regulator urges pension sector to act as deadline looms
By Abigail Townsend
Date: Wednesday 12 Oct 2022
(Sharecast News) - The Pensions Regulator has urged pensions trustees to work closely with investment managers to review liquidity positions ahead of the Bank of England's looming deadline.
The government body said trustees should discuss current liquidity positions with advisors, including "topping up or increasingly collateral where appropriate", as well as reviewing current funding positions "in light of market changes".
They should also consider the extent of their liability hedging positions, it added, while governance and decision-making requirements should be reviewed, to ensure trustees have "robust procedures" in place.
The watchdog concluded: "As the BoE recently stated, insuring schemes against all extreme market outcomes might not be a reasonable expectation but it is important that lessons are learned from these recent events.
"We will continue to monitor the situation closely this week, and following 14 October, working closely with our regulatory partners in the BoE, the Financial Conduct Authority and the government."
Normally staid bond markets have endured near unprecedented upheaval this week, after the government's controversial mini-budget sparked turmoil. The pound tumbled and gilt yields rose after the statement, which initially included £45bn of borrowing-funded tax cuts but no spending plans or economic forecasts.
The BoE was forced to step in and buy gilts in a "temporary and targeted intervention" after it emerged that some pension funds were at risk of collapse, because of rising collateral calls on liability-driven investments (LDIs).
Earlier this week, it confirmed the scheme would come to an end on Friday but said it would double the daily maximum auction size, to £10bn, until then.
However, with yields once again edging higher, analysts voiced concern about what would happen after the 14 October deadline. But hopes that the scheme may yet be extended were bluntly dismissed by governor Andrew Bailey late on Tuesday, who said: "We've announced we will be out by the end of this week. My message to the [pension] funds is you've got three days left."
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