UK pension funds’ crunch should be a cautionary tale
The Bank of England governor, Andrew Bailey, allegedly once fell asleep during a 2019 meeting about a pensions scandal, when he headed Britain’s markets watchdog. Now there are questions whether the BoE and other regulators were asleep at the wheel when it came to pension funds’ near-crash, following Kwasi Kwarteng’s “mini” Budget.
Last week’s incident — prompted by a huge surge in gilt yields, which sparked margin calls for defined-benefit pension funds using derivatives to hedge risk — has illuminated a dark corner of finance. Like other crisis-hit areas, it is one little understood despite its influence on people’s lifetime savings. It is one rife with power imbalances, conflicts and activities that fall between regulators. Despite warnings, failings have gone unaddressed for years.
The episode ought also to be studied amid wider markets turbulence. High inflation and interest-rate increases, particularly by the US Federal Reserve, have exposed strategies based on rates staying low for a long time. There will undoubtedly be other eruptions.
This story originally appeared on: Financial Times - Author:The editorial board
