The Bank of England’s emergency response may need to be extended beyond this week to deal with the market turmoil, according to a leading pension industry body.
The Pensions and Lifetime Savings Association (PLSA) said a “key concern” for pension funds is that the bond-buying program should not end too soon.
The bank was forced to step in to buy government bonds after market turmoil after Chancellor Kwasi Kwarteng’s mini-budget left some pension funds on the brink of collapse.
The central bank has said it will double the daily limit on its government bond-buying program to £10bn – and extend its scope to index-linked government bonds – ahead of an “orderly” conclusion on October 14.
The PLSA – which represents pension schemes that provide retirement income to more than 30 million savers – suggested emergency measures should continue until at least the end of October.
It states: “A major concern for pension funds since the intervention of the Bank of England has been that the purchase phase should not be terminated too soon”.
The industry association added: “For example, many believe that it should be extended until the next fiscal event on October 31 and possibly beyond, or if the purchase is terminated that additional measures should be taken to reduce market volatility.” deal with.”
The PLSA welcomed the bank’s “continued steps to ensure the proper functioning of the gilt market” and said that members of a defined benefit pension scheme should be reassured that their pension benefits are secure despite “operational challenges”.
The panel said the market turmoil had put “significant pressure” on the gilt market and pension funds using LDI (liability-driven investment). The panel said the majority of pension funds have used LDI “judiciously” and taken steps to further strengthen their financial resilience.
Sir John Gieve, former deputy governor for financial stability at the Bank of England, said the bank could be forced to continue its bond-buying program “a few weeks” beyond Friday.
“That [bond market] Yesterday’s movements must have alarmed them,” Sir John told BBC Radio 4 today program – who said the “underlying move was due to the announcement of huge additional loans” by Chancellor Kwasi Kwarteng.
Sir John said the Chancellor was still under pressure to reassure markets when he unveiled his financial plan on October 31.
“He now has to actually make a number of forecasts that work out. Well, it’s one thing to say, can he actually deliver? Does the faction believe in it? All the difficult decisions have yet to be made.”
James Athey, investment director at insurance company abrdn, said the Bank of England may be “locked up” in its asset purchase programme, saying “neither weakness nor volatility has abated significantly in the gilt market”.
And Sandra Holdsworth of Aegon Asset Management shared that financial times that “two interventions in 24 hours are quite extraordinary” – the problems in the pension industry are “much bigger than we thought a week ago”.
Former pensions minister Baroness Ros Altmann said the bank should follow through on its plan to issue $80 billion worth of government bonds.
As part of its emergency measures launched late last month, the bank said it would delay that plan – known as quantitative tightening (QT) – until the end of October, but Baroness Altmann warned that might not be enough.
She said: “With £80bn of Gilt selling dominating the market, it is very likely that the market will fall again. The bank needs to put its QT on hold… not telling the markets it won’t enter the market with £80bn in sales would create further chaos.”
Deputy Prime Minister Therese Coffey insisted pensions were safe despite the Bank of England’s warning. She said BBC breakfast: “I am absolutely confident that the pensions are safe.”
Labour’s shadow Treasury Secretary Pat McFadden said the news that the Bank of England “has been forced to intervene to calm markets for the second year in a row shows the government’s approach is not working”.