Pensions - Articles - Significant weakness in pension schemes of managing risk

 ACA spokesman and Treasurer, Stewart Hastie added, “LDI with appropriate levels of leverage has been, and continues to be, an important and successful risk management tool for UK pensions. In line with their fiduciary duties, LDI helped trustees and their advisers to improve funding levels and member benefit security in the face of decades of low gilt yields and the Bank’s 12-year QE programme.

 “There were a small minority of schemes that didn’t fare so well last Autumn although many will have started from a better position because of the use of LDI in the years before this. Nevertheless, lessons around managing liquidity risk have and will continue to be learned with the industry moving quickly to adopt higher liquidity buffers and improve governance processes.

 “We look forward to engaging further on some of the recommendations of the Committee and working with the DWP and regulators in how we can continue to improve resilience of the UK pension system. One area will be around tweaking DWP’s draft regulations for the new funding regime to ensure there is sufficient flexibility and avoid a one-size fits all approach to UK pension scheme investment. However, we don’t think a significant delay is necessary given industry has already been waiting for several years for the new funding regime.”