Recommendation 3

The European Directive on the Institute for Occupational Retirement Provision (IORP) contained restrictions on borrowing. In 2005, the UK Government took the decision to transpose it into law in a way that allowed existing investment practices, including the use of derivatives and gilt repo, to continue. Supporters of leveraged LDI argue that it helped improve scheme funding levels. However, it introduced new risks, making pension funding levels very sensitive to changes in gilt yields. These risks needed to be understood, with adequate arrangements in place throughout the investment chain to manage them. Deficiencies in this became evident in the LDI episode in September 2022. (Paragraph 46) The LDn episode