UK’s biggest pension fund loses £16bn in LDI debacle

Britain’s biggest private sector pension fund has lost £16 billion after an ‘unnecessary’ debt-driven investment strategy unravelled.

The Universities Superannuation Scheme looks after the nest eggs of 528,000 past and present higher education staff. It is one of the few defined benefit schemes still open to new joiners that offers a pension based on a member’s final salary.

USS invested heavily in controversial liability-driven investments (LDIs) – despite warnings from sponsoring employers at Oxford, Cambridge and Imperial College London. 

LDIs are meant to help ensure schemes can fulfil their promise to pay future pensions. But they came unstuck after last year’s mini-Budget sent the pensions market into meltdown.

The rout, which revealed huge borrowing hidden in the pensions system, was only halted by a £19 billion Bank of England bailout.

USS, led by former pensions regulator Bill Galvin, insisted it was not a big user of leveraged LDIs.But accounts just published show the scheme’s assets plunged from £89 billion to £73 billion last year.

‘These accounts show a terrible picture of unnecessary losses,’ said pensions expert Henry Tapper.

Galvin, who is due to retire this year, was an architect of LDI strategies as industry regulator. He was paid £790,000 in his last year at USS, including a £262,000 bonus.

Despite the fact that its investments include a 20 per cent stake in troubled Thames Water, the scheme’s overall funding position improved due to higher gilt – or Government bond – yields reducing its liabilities.