Becky O’Connor, Director of Public Affairs of PensionBee, commented: “It’s important that the general public doesn’t lose faith in pensions in general as a result of the findings of risks and dangers by the Committee.
“So-called ‘LDI’ strategies were applied specifically to ‘defined benefit’ private sector pension schemes, which are designed to pay out a certain amount of income in retirement related to someone’s salary. They do not apply to defined contribution schemes, which most of the millions of people employed by the private sector and auto-enrolled are in and which rely on stock market performance to generate a pot big enough to provide income when someone stops work.
“Despite being a fairly niche strategy unique to one part of the pensions industry, the ramifications for the whole economy of these strategies going wrong were shown to be huge in the wake of the ill-fated mini-Budget last year.
“The Committee’s recommendations are important for the economy as a whole, but also for trust in pensions as a sound place to build long term wealth, to be maintained.”
Jonathan Camfield, partner at consultants LCP, who gave evidence to the Commons Work and Pensions Committee inquiry into LDI, said: "There is a strong case for further improvements to the regulation of pension scheme investment strategies, following the turmoil of last autumn. Individual pension schemes may well have made decisions that made sense in isolation but these had knock-on impacts for the financial system as a whole, and this is an area where closer regulatory oversight would have led to a less bumpy ride.
However, the Bank of England already has a role to look at system-wide issues such as this, and, working in partnership with the Pensions Regulator could be tasked with making sure that the system as a whole is less vulnerable to shocks going forward. I am however sceptical that the underlying cause of these problems was the accounting rules which apply to pension schemes. Pensions schemes decide their investment strategy primarily on the basis of the law and regulations which come from the Government and the Pensions Regulator, and it was this framework which was the primary driver for the use of leveraged LDI in the first place".
House of Lords Report - Leveraged LDI strategies worsened September 2022 financial turmoil
|
