Source · Select Committees · Work and Pensions Committee
Recommendation 8
8
Accepted
Paragraph: 91
TPR inadequately managed risks from complex leveraged LDI encouraged for pension trustees.
Conclusion
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.
Government Response Summary
The government states TPR will be collecting LDI data via a collaborative framework with the FCA and BoE, which will be in place by the end of 2023, and refers to recommendation 9 for further details on systemic risk management.
Paragraph Reference:
91
Government Response
Accepted
HM Government
Accepted
As set out above in response to recommendation 2 the data TPR will be collecting data on LDI, including through a collaborative framework with the FCA and BoE to monitor leverage. This framework will be in place by the end of 2023. Defined benefit pensions with Liability Driven Investments: Government Response to Committee’s Seventh Report of Session 2022-23 9 DWP with HMT, TPR, BOE and FCA are working together to ensure that they are able to better manage financial systemic risks in pensions both now and in the future. Further details of this are set out in response to recommendation 9 below.