WPC seeks answers from TPR following market volatility

The Work and Pensions Committee (WPC) has written to The Pensions Regulator (TPR) to seek an update on its analysis of the recent market volatility, and querying whether the regulator should have taken stronger action earlier.

WPC chair, Stephen Timms, stated that many people, including members and sponsoring employers of defined benefit (DB) schemes, will have been “extremely concerned” to read about the impact of the fall in the price of long-dated government bonds.

“We understand this led to pension funds using liability driven investment (LDI) strategies facing unexpected ‘margin calls’, effectively, demands for cash,” he continued.

“According to press reports, schemes were selling stocks and bonds and making demands on their corporate backers to meet these demands.

"While the Bank of England’s (BofE) announcement on 28 September under its Financial Stability remit of the temporary purchase of long-dated gilts appeared to ease the pressure on schemes, there remains concern at what might happen when this intervention ends on 14 October.”

In light of this, Timms asked TPR to share its analysis of the nature of the problem and the causes behind the difficulties experienced by DB schemes, as well as TPR's expectations around the long-term impact for DB scheme funding.

Timms also asked for further clarification on the BofE intervention, querying whether TPR asked the BofE to intervene, and whether, without the intervention, responsibility would have fallen on sponsoring employers, or presented a risk to the Pension Protection Fund (PPF).

In addition to this, Timms asked for an update on the outcome of the recent emergency meeting of regulators, and what further communications TPR intends to issue to pension schemes, sponsoring employers and scheme members.

Timms also highlighted a previous blog from the regulator, which raised concerns that some schemes may have been under-prepared, after years of falling interest rates in which LDI funds were paying collateral back to schemes, querying whether TPR should have taken "stronger action earlier" given these concerns.

The regulatorpreviously welcomed the BofE's intervention in the gilt market, confirming that it has been monitoring the situation in the financial markets "closely" to assess the impact on DB pension scheme funding.

The committee requested that TPR respond to its queries by 10 October, given the "widespread concern about and urgency of this issue".

Despite the concerns raised amid the market volatility at the end of September, industry experts have reassured members of the protections in place for DB members, particularly through the PPF.

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