Supplementary evidence from John Ralfe Consulting Ltd LDI0051

Thank you for the opportunity to give evidence to the Committee, which I hope you found useful.

During the session Professor Clacher said that £500bn of pension fund assets had been “lost” as a result of the LDI debacle.

The Financial Times reported this on its front page, with the headline. “Gilt crisis was major factor in £500bn hit to UK pension funds, MPs told”[1]

The FT said: “Giving evidence to the Commons’ work and pensions select committee, Iain Clacher, a professor at Leeds University Business School, said based on his calculations “roughly £500bn is probably missing somewhere”. “And this isn’t a paper loss,” he added. “This is a real loss because pension funds were selling assets to meet the collateral calls.””

I am writing now to draw your attention to the inconsistency between Professor Clacher’s £500bn figure and the monthly “official” figures produced by the Pension Protection Fund.

1. The PPF’s figures show the drop in pension scheme assets from August 2022 - the month end before the “mini”-Budget – to September- the month after -  was just £115bn.

Even if we ascribe all of this £115bn to the “mini”-Budget, this is a fraction - less than a quarter - of Professor Clacher’s £500bn figure.

2 This £115bn is the drop in market values of pension scheme assets – a ”paper loss”, not the “real loss”, as Professor Clacher suggests. The “real loss”, based on actual asset sales by schemes, will be significantly less.

Professor Clacher’s explanation of the £500bn figure may be in his written evidence, but it would be helpful for him to provide a short explanation.

I would be grateful if you would add this note to my written evidence to the Committee.

Please feel free to ask any questions.

Fall in asset values attributable to the “mini”-Budget

The PPPF publishes monthly estimates of the value of assets held by all private sector schemes -  https://www.ppf.co.uk/ppf-7800-index 

Recent figures are :

At August 31st – the month-end before the “mini”-Budget - pension scheme assets were £1,565bn.

By September 30th – the month after the “mini”-Budget - assets had fallen by 7 per cent - £115bn - to £1,450bn.

By October 30th, asset values had risen slightly, following the Bank of England’s bond buying intervention.

The PPF says the impact of small changes in equity values during September was neutral, so it is reasonable to assume the fall in gilt and bond asset values due to the “mini”- Budget was the full £115bn.

November 2022