Following the LDI crisis last year, MPs have stressed that more safeguards are needed to ensure that pension schemes never jeopardise the stability of the UK economy, as reported by Business Telegraph.
According to a report by the House of Commons Work and Pensions Committee released on Friday, the Pensions Regulator (TPR) had encouraged defined benefit pension schemes to adapt complex derivative-linked strategies known as liability-driven instruments.
Stephen Timms, chair of the committee said:
“Gaps in regulation and the system for managing systemic risks must now be addressed to ensure that [defined benefit] pension scheme investments never again threaten the stability of the UK economy.”
Timms also stated that the Pensions Regulator “should not haver been blindsided” and the committee recommended that TWP should work with the government on a detailed analysis of how LDI strategies “affected the value of the assets and liabilities of pension schemes to understand how many have lost out and report back by the end of the year”.
Also, the report called on the government to pause the introduction from next April of the new rules affecting the funding of DB pension schemes until a full assessment of their impact was completed, as reported in the same article.
“It had taken decisive action to learn lessons from the impact of last year’s economic turmoil, including to improve the data we hold. Pension trustees are acting on our latest guidance on using leveraged liability-driven investments, which clearly sets out our expectations. We continue to work closely with the Bank of England and other partners to ensure a well-functioning system.”
The government said it welcomed the committee’s report and would respond formally in due course.
In March, Chancellor Jeremy Hunt’s Budget announcements revealed the confirmation that the annual tax-free allowance for pensions would be increased from £40,000 to £60,000 alongside the abolition of the lifetime allowance.
What’s more, in May, Hunt was urged by the Pensions and Lifetime Savings Association not to force retirement schemes to invest in riskier and complex assets.