Source · Select Committees · Work and Pensions Committee
Recommendation 3
3
Deferred
UK transposition of IORP allowed leveraged LDI, introducing risks evident in September 2022.
Conclusion
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
Government response summary AI-generated
The government highlights past actions like publishing guidance and calls for evidence. It states TPR has no direct means to restrict LDI use as it's a trustee decision, though TPR will monitor adherence to guidance and take action on governance failures.
Government Response
The government responded to this report on 20 November 2023. No passage in that response could be matched to this conclusion. Read the response document ↗