By contrast, the parliamentary work and pensions committee are troubled.
🆕 We have published our report into Defined benefit pensions with Liability Driven Investments.
You can find it here – https://t.co/ZPeEtDACbg pic.twitter.com/EqueG9IyfM
— Work & Pensions Committee (@CommonsWorkPen) June 23, 2023
They were troubled when the published this report and they will be even more troubled now they see that corporate DB plans have lost 1/3 of their asset base in a year – decades of investment and deficit contributions lost to supporting interest rate hedges.
They are calling for a radical reassessment of the Pension Regulator’s Defined Funding Code and with it the Combined Code .
A parliamentary committee has called on The Pensions Regulator to halt plans for a new DB funding code until it has fully assessed the impact of the new rules on wider financial stability.
The work and pensions select committee made the call in a report on the LDI crisis.
— Josephine Cumbo (@JosephineCumbo) June 23, 2023
British MPs have said last year’s LDI market crisis raised ‘wider questions’ about how pension scheme funding works and whether the way liabilities in DB schemes are calculated is ‘always appropriate’.
— Josephine Cumbo (@JosephineCumbo) June 23, 2023
Late last year , things had looked promising for the code
But the Christmas present won’t arrive till at earliest 2024 and with David Fairs no longer at the Pensions Regulator, enthusiasm for its measures are waning.
This is causing concern to those who have spent recent years trying to comply with the Pension Regulator’s strong nudges
Yikes!
I think the #pensions industry, and @TPRgovuk, just got a good telling off by the Government here.
Suspending the new DB funding code which aimed to improve the security of members’ benefits.
Heck… https://t.co/WktRxoSgrX
— Mike Harrison (@HigherEdActuary) June 23, 2023
As it leaves much of the advice that has been given to pension schemes apparently challenged
Why not take the Panglossian view?
It would be easy to sit back and watch the DB schemes that have been in troubled waters for so long, make it into the harbour and ready themselves to be bought out and their member’s benefits secured with annuities.
With inflation and gilt yields set to remain high for some time to come, you might have expected the Panglossian view to prevail and for people to settle down and wait for things to work out the way the funding code wants it. Schemes lock down assets, become self-sufficient of their sponsor and await a happy ending without recourse to the PPF.
But this is not likely to be . We read in today’s FT that the Government has other plans for public and private DB and the fast growing workplace DC “pension” sector.
The article makes clear that the Government’s regulatory trajectory is not to lockdown UK pensions but to encourage them to take more risk
Options to be set out in several government consultations include regulatory changes to encourage UK pension funds to invest more in riskier but potentially high-growth British assets, including early-stage companies, and to drive further consolidation of the country’s highly fragmented pensions market, said Whitehall insiders.
They added Hunt was “closely examining” a proposal by the Tony Blair Institute, a consultancy, to pool tens of thousands of public and private sector pension schemes into “GB superfunds” that would invest in UK start-ups, infrastructure and other companies.
This article has been criticised as “yet another FT copy / paste of a UK Govt Press Relations announcement”
But its authors are Jo Cumbo and George Parker who are never knowingly pushed around.
They quote the PLSA calling for the breaks to be put on
“There have been some very radical proposals by various think-tanks on pension scheme consolidation and risk-taking in recent weeks,” said Nigel Peaple, director of policy and advocacy with the Pensions and Lifetime Savings Association, a trade body that represents workplace pension funds serving 30mn savers. “Many of these have not taken into account the realities of pension saving or the operational aspects of what is achievable. So if the government is planning to do a consultation exercise that would be very welcome.”
With only 18 months left of this Government’s tenure, such a consultation would undoubtedly mean that any measures would be voted through by another Government.
I suspect that this Government’s ambition is for a speedy implementation of its plans. The Government has decided that there’s something rotten in the state of pension funding. Its concluding it’s not about liability but about asset management.
The WPC are concerned about the risk reduction strategy known as LDI, which turned out to create more risk than it prevented. The Treasury is concerned with the risk reduction strategy that is requiring schemes to put money into Government Debt rather than into productive capital to drive UK Growth.
This amounts to the same thing. The Government is telling the pensions industry to move on and the pensions industry is not happy.