‘Gold-plated’ final salary pension schemes have lost £626bn, new figures reveal the impact of a controversial investment strategy that nearly brought them to collapse this time last year.
Data from the Office for National Statistics shows the value of private-sector defined benefit schemes – those that pay guaranteed pensions based on workers’ pre-retirement pay – has fallen from more than £2tn at the start of 2022 to just under £1. decreased by one third. 1.4 trillion yen as of the end of March.
The decline was accelerated by the collapse in gold prices following former chancellor Liz Truss’ mini-budget a year ago. This resulted in the Bank of England providing a £19bn bailout to the pensions sector.
Final salary pension schemes were mostly closed in the private sector because employers could no longer pay them. Traditionally invested heavily in UK equities, it has recently adopted a controversial gold-based liability-led investment (LDI) strategy aimed at lower risk.
But this situation unraveled when the crisis exposed hidden borrowings in the pension system, forcing the LDI funds they used to sell their assets.
Ian Crutcher, professor of pensions at the University of Leeds, said: “The £600 billion figure is an astonishing amount.” “No one is being held accountable for the administration that got us here.”
Despite the losses, overall funding levels improved as estimated liabilities to pensioners (linked to the price of gold coins) fell faster than assets.
“A year on, pension funds have generally shrunk in asset size, with most of their funding levels exceeding 100%,” said Aoifhine Devitt of asset manager Moneta. But he warned that schemes were amassing huge sums of money and continuing to move away from equities, adding: “This may be a factor in the poor performance of the FTSE indexes so far this year.”
Related article
How this is money helps
Rachel Healy, of law firm RPC, said lessons had been learned from the LDI debacle, adding: “It’s much better understood than it was a year ago.” If a similar crisis were to occur again, pension funds would be better equipped as most schemes have larger buffers and funding levels should improve. ”
The ONS found that shareholdings by pension schemes have declined in each of the past five quarters, contributing to the decline in assets.
The government recently outlined plans to encourage pension funds to invest more in British companies in a bid to boost sluggish economic growth.
Some links in this article may be affiliate links. We may earn a small commission when you click. This helps fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow commercial relationships to affect our editorial independence.
