Charles Counsell, The Pensions Regulator’s chief executive officer, has told delegates at the Pensions and Lifetime Savings Association (PLSA) annual conference 2022 in Liverpool that while defined benefit (DB) pension schemes have encountered liquidity issues over the past few weeks, the funds “are not at risk of collapse”, he clarified.

Counsell was referring to how UK DB schemes have had to navigate through the fog of recent events as the whole pension funds market was caught off-guard by a sudden and unprecedented rise in Gilt yields caused by the UK government massive fiscal stimulus announcement of a couple of weeks ago.

This has caused not just a liquidity crisis but a raft of additional consequences for both pension trustee boards and corporate sponsors.

“It is absolutely clear that there have been liquidity issues in some of the funds, but that does not mean that pension schemes themselves are at risk of collapse,” Counsell said.

His somewhat sanguine approach to recent events hit back at some mainstream media reports that seem to have innacurately reported a ‘doom and gloom’ picture of UK pension funds financial positions.

A trustee with the £12.5bn Mineworkers’ Pension Scheme told IPE that despite Counsell’s overly positive speech, “many pension funds lost a load of money”. Not particularly talking about his scheme, the trustee added that many pension funds were caught off guard and were not preparded for such quick changes in Gilt yields.

The regulator has issued a statement aimed at trustees of DB and defined contribution (DC) schemes and their advisers setting out the main points TPR expects trustees to consider in managing investment and liquidity risks in the face of current market conditions – both before the end of the Bank of England’s Gilt purchase scheme, due to end today (14 October 2022), and in the near-term as trustees navigate continued market volatility.

The statement notes the usefulness of liability-driven investment (LDI) to DB schemes before going on to set out the impact of current market conditions on both DB and DC schemes – highlighting the unprecedented speed and magnitude at which Gilt yields increased towards the end of September.

The statement concludes with the promise that the Regulator will continue to monitor the situation closely and will provide further updates to trustees if needed and as the situation develops.

The Work and Pensions Committee has also published a letter at the beginning of the week that provides a useful explanation of the impact on DB schemes of the recent movements in financial markets, and as background for the production of TPR’s statement. The letter said that the Regulator is now examining how it can update its guidance for DB schemes and ensure that in light of the current economic conditions its supervision teams are setting out very clearly its expectations on managing liquidity.

Kerry Lindsay, head of scheme actuary services at Hymans Robertson, said: “Industry focus has understandably been on collateral calls for LDI funds, but rising interest rates also impact the value of member options like transfer values. Trustees need to ensure they are reviewing the terms of these options regularly to ensure they remain fit for purpose and we were pleased to see this highlighted by TPR in their statement.”

Hymans Robertson would encourage trustees to work with their advisers to review their options terms as soon as possible in light of recent market movements, and consider how these terms may need to evolve going forward given the current fast changing economic environment.

Julian Mund, PLSA’s CEO, is hopefull that the BoE’s Gilt purchase programme will be extended: “I hope the Bank’s interventions are extended beyond the 14 October, at least until the next fiscal event on 31 October. Or, if ended, additional measures are put in place to achieve market stability. Members of DB pension schemes should be reassured, despite the obvious operational challenges, that their pension benefits are safe; and scheme funding is strong.”

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