Regulators say pension system must change after mini-budget turmoil

Financial regulators have said the pension system needs to change following the turmoil in the mini-budget market which has seen some pension schemes scramble for cash.

The Pensions Regulator (TPR), which regulates pension schemes and advises on their management, told the Work and Pensions Committee that there were important lessons to be learned about how schemes invest pensions. pensioners’ money.

Many have investment strategies called liability-driven investment (LDI) funds, which were at the center of the pension crisis in September.

At the time, UK government debt yields reached historic highs and the schemes faced sudden collateral calls, meaning they had to raise funds very quickly.

Charles Counsell, the chief executive of TPR, told the committee, “What happened at the end of September were extraordinary moves, absolutely unprecedented moves.

“Obviously we asked ourselves the question of what lessons we should draw from this. It is clear that the guarantee levels were not sufficient.

“As a regulator, you have to ask yourself questions about how much you are pushing companies. Very often we are accused of placing too heavy a burden on our regulated community.

“Given what had happened in yield moves historically, 100 basis point moves seemed plausible, but quite unlikely. As it happened, something much worse happened.

He added that TPR had not anticipated how quickly yields would rise in late September.

“That having happened, we recognize that we need to change the way the system works, we recognize that we need a more robust system for the future,” Counsell admitted.

While the majority of schemes are in a better funding position than before the crisis, there are a small number of schemes that have lost money in the fallout, the TPR said.

The Financial Conduct Authority (FCA), the UK watchdog overseeing the broader financial sector, said the turmoil had revealed vulnerabilities in the pensions sector.

FCA Chief Executive Nikhil Rathi agreed with the TPR that there needs to be more data sharing from the regimes system so that regulators have a better idea of ​​their funding positions.

He said: “There were definitely some data sharing speed issues during this time.

“And I think there’s an issue around the financial acumen of some plan administrators. The question is whether the administrators really understand what they’re doing and the risks they’re taking.

He called for more control over the sector as a whole.

The Bank of England on Tuesday called on both regulators to take action to ensure LDI funds are more resilient to market movements, to ensure that the UK’s financial stability is not put at risk.

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