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Select Committee · Work and Pensions Committee

Defined benefit pensions with Liability Driven Investments

Status: Closed Opened: 24 Oct 2022 Closed: 6 Dec 2023 8 recommendations 9 conclusions 1 report

Increases in yields on long-dated gilts in late September and early October 2022 meant defined benefit (DB) schemes using Liability Driven Investment (LDI) strategies needed to deal with the rapid increase in collateral required to support the LDI trades. This led to the Bank of England’s announcement on 28 September 2022 under its Financial Stability … Show more

Clear

Reports

1 report
Title HC No. Published Items Response
Seventh Report - Defined benefit pensions with Liability Dr… HC 826 23 Jun 2023 17 Responded

Recommendations & Conclusions

3 items
4 Conclusion Seventh Report - Defined benefit pensio… Acknowledged

Prevent DB pension scheme investments from jeopardising the UK economy in future.

Sharp rises in gilt yields which LDI funds lacked the resilience to manage, led to the Bank of England having to intervene in September 2022 to protect financial stability. DB pension scheme investments must not be allowed to jeopardise the UK economy again. Read more

Government response AI summary
The government acknowledges the concern by welcoming the Committee's separate recommendation to bring investment consultants under FCA regulation. It states it will consider this as part of a call for evidence and take various views into account for future steps.
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Department for Work and Pensions
7 Conclusion Seventh Report - Defined benefit pensio… Acknowledged

Require TPR to mandate trustee data reporting on LDI and develop engagement strategy.

Leverage may have worked relatively well for pension schemes during a long period of low and volatile interest rates. However, it exposed them to additional liquidity risk and requirements, as collateral demands can change over short periods when interest rates change. With the imposition of much higher capital buffers, the … Read more

Government response AI summary
The government highlights existing legal requirements for trustees to prepare investment principle statements. It states TPR has an existing program to collect data and DWP will consider future changes to disclosure requirements based on TPR's findings.
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Department for Work and Pensions
17 Recommendation Seventh Report - Defined benefit pensio… Acknowledged

September 2022 demonstrated systemic risks from DB scheme investment strategies.

The September 2022 episode demonstrated the potential for the investment strategies used by DB schemes to give rise to systemic risks. While action has been taken to address some of the weaknesses which were exposed in this episode, there is still more work to be done. In this Report we … Read more

Government response AI summary
The Government welcomes the Committee’s report and indicates progress to date and proposals for future work to address each recommendation.
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Department for Work and Pensions

Oral evidence sessions

5 sessions
Date Witnesses
22 Mar 2023 Andrew Griffith MP · HM Treasury, Laura Trott · Department for Work and Pensions, Lowri Khan · HM Treasury, Tom Josephs · Department for Work and Pensions View ↗
1 Feb 2023 Professor David Blake · Pensions Institute, Bayes Business School, Sarah Breeden · Bank of England, Tim Bush · Pensions and Investment Research Consultants, Toby Nangle View ↗
14 Dec 2022 Charles Counsell · The Pensions Regulator, David Fairs · The Pensions Regulator, Evan Guppy · Pension Protection Fund, Nikhil Rathi · Financial Conduct Authority, Oliver Morley · Money and Pensions Service, Simon Walls · Financial Conduct Authority View ↗
7 Dec 2022 Abdallah Nauphal · Insight Investment, Charles Prideaux · Schroders Investment Management Ltd, David Fogarty · Dalriada Trustees Limited, Dr Jonathan Lipkin · Investment Association, Harus Rai · Capital Cranfield, Kerrin Rosenberg · Cardano Investment, Rod Goodyer · Barnett Waddingham LLP View ↗
23 Nov 2022 Dr Con Keating · Brighton Rock Group, Iain Clacher · Leeds Business School, Joe Dabrowski · Pension and Lifetime Savings Association, John Ralfe · John Ralfe Consulting, Jonathan Camfield · Lane, Clark & Peacock, Leah Evans · Institute and Faculty of Actuaries, Mr Henry Tapper · Agewage, Mr Steven Taylor · Association of Consulting Actuaries View ↗

Who gave evidence

29 witnesses
WitnessOrganisationSessions
Abdallah Nauphal · CEO Insight Investment 1
Andrew Griffith MP · Economic Secretary to the Treasury HM Treasury 1
Charles Counsell · Chief Executive The Pensions Regulator 1
Charles Prideaux · Group Head of Strategy and Solutions and Chief Ex… Schroders Investment Management Ltd 1
David Fairs · Executive Director of Regulatory Policy, Analysis… The Pensions Regulator 1
David Fogarty · Director Dalriada Trustees Limited 1
Dr Con Keating Brighton Rock Group 1
Dr Jonathan Lipkin · Director of Policy, Strategy and Innovation Investment Association 1
Evan Guppy · Head of LDI and Credit Pension Protection Fund 1
Harus Rai · Managing Director Capital Cranfield 1
Iain Clacher · Professor Leeds Business School 1
Joe Dabrowski · Deputy Director Pension and Lifetime Savings Association 1
John Ralfe · Independent Consultant John Ralfe Consulting 1
Jonathan Camfield · Partner Lane, Clark & Peacock 1
Kerrin Rosenberg · CEO Cardano Investment 1
Laura Trott · Minister for Pensions Department for Work and Pensions 1
Leah Evans · Chair of Pensions Board Institute and Faculty of Actuaries 1
Lowri Khan · Director of Financial Stability HM Treasury 1
Mr Henry Tapper · Executive Chair Agewage 1
Mr Steven Taylor · Chair Association of Consulting Actuaries 1
Nikhil Rathi · Chief Executive Financial Conduct Authority 1
Oliver Morley · Chief Executive Officer Money and Pensions Service 1
Professor David Blake · Director Pensions Institute, Bayes Business School 1
Rod Goodyer · Head of Investment Consulting Barnett Waddingham LLP 1
Sarah Breeden · Deputy Governor for Financial Stability Bank of England 1
Simon Walls · Interim Executive Director, Markets Financial Conduct Authority 1
Tim Bush · Head of Governance and Financial Analysis Pensions and Investment Research Consultants 1
Toby Nangle — 1
Tom Josephs · Director Private Pensions and Arms-Length Bodies Department for Work and Pensions 1

Correspondence

12 letters
DateDirectionTitle
12 Jul 2023 — Correspondence with the Minister for Pensions relating to the Defined benefit p…
3 May 2023 — Correspondence with the Minister for Pensions and the Economic Secretary to the…
3 May 2023 — Correspondence from the Financial Conduct Authority relating to Liability Drive…
19 Apr 2023 — Correspondence with Minister for Pensions and Economic Secretary to the Treasur…
22 Mar 2023 To cttee Letter from David Roberts, Chair of the Court of the Bank of England, relating …
15 Mar 2023 — Correspondence with the Bank of England relating to Defined benefit pensions wi…
25 Jan 2023 — Correspondence with the Pensions Regulator (defined benefit pensions with Liabi…
25 Jan 2023 — Correspondence with the Financial Conduct Authority (defined benefit pensions a…
25 Jan 2023 — Correspondence with the Pensions Protection Fund (defined benefit pensions with…
12 Jan 2023 — Correspondence with the Government's Actuary Department about the LDI inquiry
14 Dec 2022 — Correspondence with the Minister for Pensions about the Committee's inquiry int…
14 Dec 2022 — Correspondence with The Pensions Regulator about the defined benefit pensions w…