22 March 2023 - Defined benefit pensions with Liability Driven Investments - Oral evidence

Committees question Ministers on the use of liability-driven investment strategies by pension schemes

The House of Commons Work and Pensions Committee and the House of Lords Industry and Regulators Committee will hold a session with the Pensions Minister and the Economic Secretary to the Treasury on the use of liability-driven investment (LDI) strategies by defined benefit pension schemes, given their role in the market turbulence that followed the September 2022 fiscal event. The Committees will question the extent to which LDI strategies have been driven by accounting standards, whether regulators have encouraged the use of LDI, and regulators’ ability to identify potential systemic and concentration risks in key gilt markets. The Committees will also consider whether the use of bank-like strategies and instruments by pension schemes, involving repurchase agreements (repos) and derivatives, has been legal or desirable.

In February 2023, the Industry and Regulators Committee wrote to the Pensions Minister and the Economic Secretary to the Treasury to make a number of recommendations on this issue, including a review of how pensions are accounted for, tighter controls on the use of repos and derivatives by pension schemes, and regulation of the advice given by investment consultants to pension schemes. The Committee also recommended that The Pensions Regulator should be given a statutory duty to consider the impacts of pension funds’ actions on the wider financial system and that the Financial Policy Committee should be given the power to direct action by other regulators if its concerns are not addressed, including The Pensions Regulator.