Source · Select Committees · Work and Pensions Committee
Recommendation 7
7
Acknowledged
Require TPR to mandate trustee data reporting on LDI and develop engagement strategy.
Conclusion
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 cost of LDI has risen. For schemes in deficit who use these strategies, this may mean it takes longer to reach their long-term objective. Trustee boards will continue to have complex decisions to make about whether and how to use LDI. The experience of September 2022 indicates some will face challenges doing so. TPR should require trustees to report certain data on their use of LDI and should develop a strategy for engaging with schemes based on the results more closely. (Paragraph 81) Governance of LDn risks
Government Response 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.
Government Response
Acknowledged
HM Government
Acknowledged
The law (section 35 of the Pensions Act 1995 and the Occupational Pension Schemes (Investment) Regulations 2005) requires trustees of a scheme with more than 100 members to prepare a statement of investment principles setting out their investment strategy, including the investment objectives and policies trustees adopt. This statement is reviewed at least every 3 years and after any significant change in investment policy. As set out in the response to recommendations 2 and 5 TPR has a programme of work in place to collect data and monitor compliance with resilience standards. DWP will consider, in light of TPR’s findings, whether changes to disclosure requirements are appropriate.