Tag: pensions

What caused the LDI crisis?

Gabor Pinter, Emil Siriwardane and Danny Walker

In September 2022 the interest rate on UK gilts rose by over 100 basis points in four days. These unprecedent market movements are generally attributed to two key factors: the 23 September announcement of expansionary fiscal policy – the so-called ‘mini-budget’ – which was then amplified by forced sales by liability-driven investment funds (LDI funds). We estimate that LDI selling accounted for half of the decline in gilt prices during this period, with fiscal policy likely accounting for the other half. Balance sheet segmentation and operational issues slowed capital injections into LDI funds by well-capitalised pension schemes, leading LDI funds to instead sell gilts. Our analysis shows that these frictions were most pronounced for pooled LDI funds. There are further details in an associated working paper.

Continue reading “What caused the LDI crisis?” →

Will there really be a pensions spending spree?

Philip Bunn and Alice Pugh

“UK prepares for pensions spending spree” “House prices set to soar by 30 per cent as savers raid pension funds” These were some of the headlines which followed the pension reforms announced by the UK government in the 2014 and 2015 Budgets.  But how much truth do they contain?  In contrast to some of the headlines, results from a household survey commissioned by the Bank suggest that greater pension freedom will have only a small impact on household spending.  And – although a number households would like to invest funds withdrawn from their pension in property – only a subset of these are likely to be able to afford to do so, and some may have bought property even without the reforms.

Continue reading “Will there really be a pensions spending spree?” →