Pension schemes may have needed employer support without BoE intervention -regulator

LONDON, Oct 12 (Reuters) – Pension schemes may have had to put up more cash to support their under-water derivatives positions or called on their employers for help if the Bank of England had not supported the gilt market, the pensions regulator said on Wednesday.

“Without the Bank’s intervention, some schemes would have faced much larger collateral calls and would either have been forced to reduce levels of hedging or possibly seek support in the form of liquidity from their sponsoring employers to protect their LDI (liability-driven) investments,” Charles Counsell, CEO of The Pensions Regulator said in a letter to parliament’s work and pensions committee.

“This, in turn, could have had an impact on the scheme sponsor.”

The central bank is due on Friday to end its bond-buying programme, as pension schemes sell billions in assets to meet collateral calls on their hedging positions.

However, defined benefit pensions schemes were not at risk of collapse because of the rise in British bond yields, Counsell said in the letter to Stephen Timms, the chair of the committee, dated Oct. 10 and published on Wednesday.

The oversight of the 1.6 trillion pound ($1.77 trillion) LDI market has come under scrutiny since a sharp rise in gilt yields after a fiscal statement on Sept. 23 triggered the collateral calls on LDI positions.

“It is unclear whether the use of LDI will change as a result of the significant changes in funding levels as a

result of bond yields and the associated asset allocation decisions that trustees may make as a result of that,” Counsell said in the letter.

“We will be giving further consideration to this, alongside other regulators.”

UK pension fund trustees should step up engagement with investment managers to quantify funding gaps and risks prior to the end of the BoE’s bond-buying scheme, the regulator said earlier on Wednesday in guidance for trustees.

($1 = 0.9047 pounds)

Reporting by Carolyn Cohn; Editing by Emelia Sithole-Matarise

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