On the go: The Institute and Faculty of Actuaries has opted not to issue a ‘risk alert’ over liability-driven investments, in response to the liquidity crisis faced by many defined benefit schemes that unfolded after the September ‘mini’ Budget.
The Bank of England announced an emergency £65bn bond-buying programme after falling government bond prices prompted collateral calls for DB funds.
Issues arose specifically around schemes’ LDI strategies, which are designed to protect against falling interest rates. Sections of the media reported that the solvency of DB schemes was under threat, which has been widely rejected by the pensions industry.
On October 21, the IFoA issued a statement playing down the impact of the recent market turmoil on schemes’ abilities to service savers.
“The IFoA believes that the recent volatility in the gilt markets has not materially impacted the ability of DB pension schemes to meet their obligations to members,” it said.
“The short-term challenge was around operations and liquidity for collateral, rather than any risk to members’ pensions.
“In fact, the rising interest rates mean that many schemes are now better funded and closer to being able to secure benefits with an insurance company.”
The IFoA said that the recent market disruption could serve as a “catalyst for open discussion” on schemes’ approaches to risk management.
“Our regulatory board quickly and formally considered whether a risk alert on LDIs should be issued, and concluded not at this time although it will continue to keep this question under review,” it said.
In August, the IFoA issued a risk alert acknowledging the impact of high inflation on the actuarial practice. In April, it published a risk alert warning that actuaries may not be properly considering the threat of climate change in their work.
