April 2023 LDI guidance from The Pensions Regulator

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On 24 April 2023, the Pensions Regulator (TPR) published important new DB trustee guidance on leveraged liability driven investment (LDI) designed to address issues arising out of the September/ October 2022 gilt market volatility. Here we summarise the key actions and main points.

Key actions for trustees that use leveraged LDI

  • Speak with your investment adviser and LDI manager to ensure that relevant TPR expectations can be met, and that the manager is implementing the FCA guidance as necessary.
  • Review the scheme’s governance and operational processes around LDI and adjust these if need be.
  • Ensure that relevant matters are suitably documented.

LDI managers have taken steps to build in additional resilience through increased yield buffers since Autumn 2022. Trustees should seek to understand the extent to which this helps the scheme meet the new guidance and whether they need to take further actions to ensure their scheme is compliant. This may require a review of procedures for meeting collateral calls and a review of liquidity of the non-LDI assets.

TPR’s LDI guidance

TPR’s latest LDI guidance follows the Bank of England’s Financial Policy Committee’s 29 March 2023 statement (see the Insight produced by our colleagues in the Gateley Legal pensions team). It replaces TPR’s October 2022 statement and November 2022 guidance (see Gateley’s Insight).

LDI within the investment strategy

This part of the guidance helpfully pulls together how trustees’ existing investment duties should operate in the context of LDI. Trustees must be clear on where LDI fits within a scheme’s investment strategy, reviewing the strategy regularly and after significant changes. The guidance sets out certain factors that trustees should consider when considering this. Changes to the investment strategy should be documented.

Action summary: Understand role of LDI, review strategy and document accordingly.

Knowledge and understanding

Trustees must have adequate knowledge and understanding of LDI, when to take advice and which investment activities can or must be delegated. Advisers will be able to assist with any training needs.

Action summary: Assess level of knowledge on Trustee Board as a whole and for individual trustees and consider whether further training is needed.

Collateral resilience

Resilience standards

Trustees must set, operate, and maintain a “collateral buffer”, a reserve which can be used by the fund manager if additional collateral is required when market conditions change. Both an “operational buffer” for day-to-day fluctuations and a “market stress” buffer for ‘severe market stress’ are needed to maintain resilience.

TPR has adopted the Financial Policy Committee’s recommended market stress buffer of at least 250 basis points – this “should be maintained in normal times but can be drawn upon in periods of stress”.

The market stress buffer should be capable of being replenished within five days (if longer, a larger buffer may be needed). A larger market stress buffer may be needed at other times as well – for example, if the assets held are more volatile than those typically held in a buffer.

The market stress buffer operates in addition to the operational buffer – for example, if the former is 250 basis points and the latter 100, the total buffer will be 350 basis points.

The trustees need to satisfy themselves as to the adequacy of the buffer and its operational effectiveness. Pointers are provided by TPR on assessing the appropriateness of the buffers.

Maintaining the buffer

Trustees need to understand when ‘cash calls’ may be made to maintain the buffer, how these will be met and document the processes. Relevant considerations for which assets should be held in the buffer include selling time, and the impact of stressed market conditions on the liquidity, availability, and value of the asset.

Resilience testing

There should be sound and regular (perhaps annually or triennially) testing for resilience, particularly in respect of collateral. Testing should also be carried out after significant funding, investment, or market condition changes.

Although the LDI managers will formulate these tests, trustees need to satisfy themselves that they are sound and that they understand the risks. The test results should be documented with any concerns identified subsequently addressed.

The guidance covers the two ways in which resilience testing can be carried out: (1) considering performance under different scenarios relevant to the investment strategy and vulnerabilities; and (2) ascertaining the market movement size needed before a particular event would happen such as a call to replenish the buffer.

Action summary: Have operational and market stress (250bps+) buffers, maintain buffer and test resilience.

Consider whether the investment strategy should be updated to increase liquidity to the level needed to support an increased buffer.


LDI resilience needs to be monitored. Trustees will need to liaise with advisers to ensure that they have appropriate oversight of the monitoring that LDI managers carry out. TPR’s guidance provides useful examples of the type of information that trustees may find helpful in this regard:

  • the value of LDI assets
  • the value of the assets available to meet cash calls
  • the value and liquidity of assets earmarked for cash calls
  • the size of the operational and market stress buffers and how these compare to recent and long-term market volatility
  • the size of market movement which needs to take place before the next collateral calls would need to be made, and how large these calls would be
  • if any collateral calls have been made – which assets were sold, the price achieved for these assets, and how the processes performed – for example the time taken to meet the cash call
  • whether hedging has been lost or reduced during the reporting period, and the impact of this
  • reminders of the timelines for meeting cash calls to LDI arrangements
  • reminders of the dealing cycles of assets identified to meet cash calls.

In addition to the regular cycles of reporting, trustees may need to ask that information is provided when specific triggers are met and when markets behave unusually.

Action summary: Have adequate oversight of LDI resilience monitoring.

Consider whether regular monitoring reports provided by consultants or investment managers need to be updated to allow adequate oversight of LDI resilience.


Trustees need to make sure that:

  • the scheme has appropriate governance and operational processes to effectively manage the scheme’s LDI reflective of the investment governance model adopted and the services that advisers/ managers provide; and
  • that the processes are suitably documented and periodically reviewed.

Action summary: Understand how the LDI arrangements work and that they will work effectively in all conditions. This may require consultants and LDI managers to provide reassurance to trustees on these points.

Trustees should ensure they are aware of the actions they may be required to take to respond to collateral calls and the timescales involved. They should have processes in place to ensure these can be met when required.

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