Inconvenient truths – Clacher and Keating

Iain Clacher and Con Keating

On Thursday 21st September, the ONS released the results of the latest results of the Financial Survey of Pension Schemes, which reports on occupational pension schemes to the end of March 2023.[1] From this, it is evident that the rebalancing of portfolios extended beyond year-end 2022 and went into the first quarter of 2023.

In first quarter of 2023, repo leverage fell from £150 billion to £123 billion. Interest rate movements over the quarter would have resulted in an increase in repo of the order of 3%. In addition, interest rate swaps declined in both gross and net terms – swaps with negative value by £15 billion, with the net decline reported as £10 billion. This was accompanied by a decline in cash and equivalents from £79 billion to £69 billion.

There was a small increase in LDI pooled fund holdings from £163 billion to £168 billion. This is broadly in line with the movement of interest rates in the quarter.

Overall, leverage has increased slightly since December 2022, and is now 112.5% having been 111.2% at the end of 2022.

Direct holdings of gilts were little changed on the quarter, the increase from £368 billion to £384 billion, and with the exception of a £3 billion increase in the 7-15 year maturity bracket, it is likely that this change in values is fully explained by the decline in gilt yields

The survey also reports that the total net assets of DB schemes were £1,244 billion up from a revised £1,225 billion (previously £1,230 billion) in December 2022. This brings the total net losses of schemes since December 2021 to £577 billion and the gross loss to £626 billion.

The most alarming issue that is still pervasive and has been since around March 2022 is the discrepancy between these asset figures and the estimates of the PPF and TPR who are reporting values of £1,440 billion and £ £1,425 billion respectively at end of March 2023. The differences are £196 billion and £181 billion.

This brings into serious doubt the PPF’s estimate of schemes in surplus and the overall health of the DB system. .

The discrepancy is some 18% of liabilities. Recently, a Professional Pensions survey reported that 36% of schemes reported being continuously in deficit and 14% as being either in deficit or surplus (TP basis) depending on the day and market changes.[2]

The sole item that we are at a loss to explain is the decline in insurance policies from £122 billion to £117 billion when we would have expected this to increase with the fall in gilt yields, if no new policies had been acquired and press reports were that several billion were acquired.

We would suggest that before chasing a role as a pension consolidator, the PPF should resolve this major discrepancy in asset values as it has serious implications for the quality of their risk management.



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Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Inconvenient truths – Clacher and Keating

  1. con keating says:

    As I have had a few emails on this – an addition
    On the anniversary of the LDI crisis, it is worth looking at how the world of LDI has changed. Between the end of December 2021 and March 2023, leverage actually increased from 11.2% to 12.5% of scheme assets. Repo declined in nominal terms from £194 billion to £123 billion, 36.6%. While Pooled LDI fund exposure fell from £231 billion to £168 billion in nominal terms, 27.3%. As a proportion of liabilities in December 2021 these pooled funds were 12.5% and they are now 13.5%.

    We would like to think that instead of talking about how “well-funded” schemes are, that TPR would be looking at this – it is what got us into this terrible position in the first place.

    As for PPF, before chasing a role as a pension consolidator, it seems sensible for them to resolve this major discrepancy in asset values as it has serious implications for their credibility in terms of the quality of their risk management.

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