Investigation needed to hold those behind UK pension crisis to account | opinion
Within just a few days of September’s “mini” Budget, the UK’s company pension system seemed to be in meltdown, with apocalyptic headlines about scheme solvency, all blamed on so-called liability-driven investment.— the long-term government IOUs that are the mainstay of UK pension fund investments. Although the nuts and bolts of how LDI works are complex and opaque, the big picture is clear.
By increasing leverage, many UK pension schemes have been operating as badly run hedge funds, increasing risk for themselves and the whole financial system. This greed, stupidity and laziness was encouraged by investment consultants, who get paid for complexity. What was the trigger for the meltdown? As gilt interest rates rose following the “mini” Budget, UK government bond prices fell and the value of the leveraged units fell even more. This triggered calls for pension schemes to stump up more collateral on their trades.
Taxpayers should not be bailing out companies that have benefited from pension scheme leverage and holding equities, allowing them to make lower cash contributions to their pension schemes. Companies should be getting out their cheque books, accelerating their deficit contribution payments or meeting margin calls directly on behalf of their schemes.
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