Recommendation 8

TPR encouraged pension scheme trustees to use leveraged LDI, which involves complex financial instruments. It continued to rely on them as the first line of defence to manage the risks, despite its longstanding concerns about governance standards in some schemes, particularly smaller ones which do not benefit from economies of scale. As the regulator, with responsibility for standards of governance in workplace pension schemes, TPR was the second line of defence. It issued guidance on managing the risks of LDI but was not able to monitor whether that was being followed. It should have focused earlier on the risks of encouraging trustees to use such complex financial products and worked with DWP to consider what further action was needed to mitigate the risk.