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Call for Evidence

Defined Benefit pensions with liability driven investments - Call for evidence

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Increases in yields on long-dated gilts in late September and early October meant defined benefit (DB) schemes using liability driven investment (LDI) strategies needed to deal with the rapid increase in collateral required to support the LDI trades. This led to the Bank of England’s announcement on 28 September under its Financial Stability remit of the temporary purchase of long-dated gilts until 14 October.

The Work and Pensions Select Committee is conducting a short inquiry on the lessons to be learned from this experience, focusing on the impact of the recent volatility in gilt yields on DB schemes with LDI strategies and their regulation and governance. The Committee is keen to receive written evidence from those with expertise, experience or an interest in DB pensions with LDI strategies. It is particularly interested to receive evidence on the following:

- The impact on DB schemes of the rise in gilt yields in late September and early October;

- The impact on pension savers, whether in DB or defined contribution pension arrangements;

- Given its responsibility for regulating workplace pensions, whether the Pensions Regulator has taken the right approach to regulating the use of LDI and had the right monitoring arrangements;

- Whether DB schemes had adequate governance arrangements in place. For example, did trustees sufficiently understand the risks involved?

- Whether LDI is still essentially ‘fit for purpose’ for use by DB schemes. Are changes needed?

- Does the experience suggest other policy or governance changes needed, for example to DB funding rules?

 

The deadline for submissions is Tuesday 15 November 2022.

The Committee intends to follow work in this area with a further inquiry in the new year looking at DB schemes more widely. A separate call for evidence for that inquiry will be made in due course. Issues are likely to include DB scheme funding requirements and arrangements to protect pension benefits when a scheme is wound up.

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