UK schemes told to review cash flow position
30 September 2022
UK pension schemes have been urged to assess their cash flow position after a spike in gilt yields triggered worries about a scramble for cash.
The Pensions Regulator (TPR) told schemes they must review whether they can cope with further market stresses, but welcomed the Bank of Englan’s move to buy as many long-dated government bonds as required.
The central bank moved after gilt yields underwent a sudden surge following the fallout from Chancellor Kwasi Kwarteng’s mini-budget announcement.
“We welcome steps announced by the Bank of England to restore orderly conditions through temporary purchases of long-dated UK government bonds,” a TPR spokesperson said.
“We again call on trustees of DB schemes and their advisers to continue to review the resilience and liquidity of their investments, risk management and funding arrangements, and plan accordingly to protect the interest of scheme members,” they added.
David Rae, head of strategic client solutions at Russell Investments said that no crisis management is required as things stand.
“Liquidity remains more than sufficient to meet the collateral requirements of liability hedges. Improved funding positions present an opportunity to take stock, further de-risk and continue along the path to an end game solution.
“Ultimately, the emphasis that trustees have placed on ensuring robust governance and risk management structures has been well rewarded over recent weeks, and once again the importance of appropriate delegation has been highlighted,” he added.
But Heather Allingham, actuary & head of pensions consulting for charities at Hymans Robertson, said charity schemes must have an “open dialogue about immediate challenges” as well as “longer-term risks” to create an understanding of the challenges to income and reserves.
She said: “Conversations about covenant leakage should also be included here, and although this is less of an issue for charities than for corporates, it will help to ensure the pensions scheme is treated equitably alongside other stakeholders.
“Additionally, looking at ways to increase scheme security, such as giving the pension scheme a charge over a charity asset or introducing a contingent contribution structure to support more investment risk or lower cash contributions, is one way to manage during this time,” she added.
As of March 2021, there were 5,522 private DB and hybrid schemes in the UK, according to TPR’s Annual Landscape report
Defined benefit pension schemes in the UK hold around £2.5 trillion in assets.
Last Updated: 30 September 2022