UK regulators failed to identify threat from pension plan borrowing, peers say
Regulators failed to anticipate the dangers borrowing by the pension scheme would pose to the stability of the UK’s financial system, saying the turmoil that hit the gold and silver markets following Liz Truss’ devastating ‘mini’ budget last September. According to a congressional report on
Pension schemes have suffered billions of pounds in losses after being forced to sell assets. the investor refused Prime Minister’s economic strategy at the time.
In its findings released on Tuesday, the House of Lords’ Industry and Regulators Committee urged the government to reconsider the requirement to recognize retirement income promises in companies’ annual accounts.
“We urge regulators to introduce greater control and oversight over the use of borrowing in LDI strategies and assess whether UK accounting standards are suitable for the long-term investment strategies expected of pension schemes. We are asking the government to do that,” said Lord. Chairman Clive Holick.
truss Neither she nor her prime minister, Kwasi Kwarten, were told on Monday about the pension ‘tinder’ before the mini-budget. It’s a difficult position as prime minister,” she told The Spectator.
Some Conservative MPs have privately described Truss as “paranoid” when the former Prime Minister tried to defend his record of 49 days at Downing Street. She was forced into her resignation as a result of a controversial £45bn tax cut scheme funded by her debt.
A report by the Commission shows the first conclusions of three parliamentary inquiries into last year’s pension system crisis, forcing the Bank of England to intervene in a £65bn gold coin buying programme.
Around £1.4 trillion has been invested in the LDI strategy. The LDI strategy is used in about 60% of his 5,131 defined benefit pension schemes in the UK, representing about 10 million members.
In a letter to ministers, a Senate committee called on pension regulators to give statutory mandates to consider the impact of the pension sector on the wider financial system. It also recommends that the Bank of England’s Monetary Policy Committee give new powers to direct action to regulators if risks are not addressed.
The pension regulator said it took note of the commission’s recommendations and had already “learned lessons and taken action to address many of the issues raised.”
The report also recommends regulating the advice that investment consultants provide to pension plans. This is an idea previously put forward by Nikhil Rathi, CEO of the Financial Conduct Authority, a financial watchdog.
The Rose Commission also questioned the legal status of the LDI strategy, noting that UK law prohibits the use of pension scheme borrowing to enhance returns.
By using derivatives, pension schemes were able to buy up to £7 of exposure in gilts for every £1 invested in the most leveraged LDI strategy. Lord Horrick said there was a need for tighter control and oversight of the LDI strategy, along with “much tighter limits” on the leverage allowed.
Two other studies of the pension fund crisis by the MP heard calls for a complete ban on the use of leverage in LDI strategies.
In evidence of last week’s inquiry by the House of Commons’ Jobs and Pensions Choice Committee, Sarah Breeden, the Bank of England’s financial stability secretary, said leverage “is not inherently a bad thing”. Well managed.
Next month, the central bank will outline plans to make the LDI sector more resilient. This includes guidance on appropriate leverage limits for these funds.
https://www.ft.com/content/4701b6ac-851e-43fd-a2b2-b38dd07c7b0e UK regulators failed to identify threat from pension plan borrowing, peers say