Defined Benefit Pension Funds
Baroness Bowles of Berkhamsted Excerpts(2 years ago)
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Baroness Penn (Con)
My Lords, LDI strategies can be used as a risk-management strategy for pension funds, and I would expect them to continue to do so. There were specific circumstances which the Bank stepped in to address. But my noble friend is right that it is important that we reflect on what happened to those particular funds in that period and make sure that the Bank of England and the Financial Policy Committee have the right oversight to ensure ongoing stability in these markets.
Baroness Bowles of Berkhamsted (LD)
My Lords, a key focus of the IORP directive, which was transposed into the Pensions Act 2004, was to prohibit borrowing so that assets are retained for the payment of pensions and not put at risk of being drained away to third parties. With that prohibition on borrowing, how has that been circumvented, permitting repos and investing in funds that break both the principle and detail of that provision? Is it not dishonest to describe LDI as de-risking when it introduced leverage and derivative exposures of some £1.4 trillion, which is nearly the same as the total pension fund assets?