Pensions Insight: week ended 2 December 2022

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Gateley Legal & Entrust

In this edition of our Insight, we focus on the Pensions Regulator’s 30 November 2022 statement on maintaining Liability Driven Investment (LDI) resilience which was released on the same day as LDI statements were published by the EU regulators and the Financial Conduct Authority (FCA). We also cover the latest news on dashboards.

Regulator statements on LDI


Following the recent period of gilt market volatility and the Pensions Regulator’s subsequent 12 October 2022 statement on managing investment and liquidity risk, the Regulator has issued a further guidance statement on ‘maintaining liability-driven investment resilience’ – that is having an ‘appropriate level of resilience’ to deal with rapid movements in bond yields, and ‘improving operational governance’.

Another update with longer-term expectations will be provided in the Regulator’s April 2023 Annual Funding Statement (with interim further guidance where appropriate).

The NCA Statements and the FCA’s statement

The Regulator’s 30 November statement was published on the same day as two other sets of regulator statements were issued:

  • Statements on LDI funds (the NCA Statements) from the Central Bank of Ireland and the Commission de Surveillance du Secteur Financier (known together as ‘National Competent Authorities’ (NCAs), and most often the regulators of the funds in which the majority of LDI funds that are marketed in the UK are based). The NCA Statements have been welcomed by the Regulator; and
  • An LDI statement from the Financial Conduct Authority which confirmed that the FCA has been ‘working closely’ with other regulators and liaising with LDI portfolio management firms regarding resilience in the face of potential volatility going forward. Liquidity buffers are needed but can only partially deal with events and LDI fund managers must ‘learn lessons’ to be able to deal with future events.

“All market participants should factor recent market conditions into their risk management and should adopt a wider horizon of events that might be considered extreme but plausible.”

Key points from the Regulator’s statement

In summary, trustees who use LDI should maintain a specific level of liquidity buffer (or take specific action if not) and review the scheme’s governance procedures making changes where necessary.

Resilience levels and reduced risk

The NCA Statements refer to European GBP LDI funds having an average Yield Buffer (protection level from long-term gilt yield adjustments before capital reserves are used up) of 300-400 basis points – the expectation is that resilience levels and reduced risk profiles are now maintained given the present ‘market outlook’. The Regulator ‘acknowledges’ these expectations.

Insufficient liquidity

Schemes that cannot or do not wish to hold these levels of liquidity should discuss hedging levels with their advisers. Reduced hedging should be done in a ‘predetermined’ way.

ACTION FOR TRUSTEES: the Regulator’s expectations: Trustees are likely to require advice from their investment consultants and legal advisers on many of the action points.


Trustees must keep suitable documentation of relevant arrangements and appraise the arrangements regularly. 

Testing the liquidity buffer

This is the responsibility of the trustees (although adviser input will be needed).

Departing from the liquidity buffer    

Actions for trustees that ‘depart’ from the NCAs’ liquidity buffer include:

  • being able to show the buffer that is set up;
  • risk assessing how the scheme will react to stressed market events to ensure resilience; and
  • having a plan for achieving higher resilience levels should market volatility return.

Review governance processes    

Governance processes must be reviewed so that improvements can be made where necessary – trustees should ensure that the following practical matters are or have been addressed:

  • check authorised signatories are updated and governance is such that quick decisions can be made when needed;
  • stress the LDI (both non-leveraged and leveraged) using a NCA set yield shock;
  • calculate necessary collateral and asset type;
  • set out dates that collateral/margin calls have to be made, and consider relevant matters in respect of the cash settlement;
  • confirm instruction and signature details, collateral/cash margin payment arrangements and post collateral/margin call asset allocation.

Continue discussions with LDI managers

Discussions with LDI managers should include replenishment triggers, meeting call processes and liquidity visibility.

Ensuring liquidity through the employer

Schemes that wish to maintain liquidity through sponsoring employer credit must make sure that there is appropriate documentation in place that is reviewed at suitable intervals. Facilities must be short-term and for liquidity. Legal advice would be required.


Many schemes using LDI investment strategies will already have considered resilience levels and adopted yield buffers that meet the NCA and Regulator expectations. Many will have also considered their governance processes and adapted them where needs be to take account of ‘lessons learned’ from recent LDI market events and future expectations around market volatility. Therefore, most will not have to take significant action to satisfy the newly issued expectations. For others, the statements will provide welcome guidance to assist in dealing with the risks surrounding LDI in unstable economic conditions.

Further detail about the key issues that schemes should consider in the current economic environment can be found here.

PDP consultation on draft pensions dashboards design standards

On 1 December 2022, the Pensions Dashboards Programme (PDP) published a consultation on its draft design standards for qualifying pensions dashboards services (QPDS). This follows the PDP’s July and August 2022 call for input.

The design standards will prescribe how QPDS will have to present pensions information to users. Although they will not directly place obligations on pension providers and schemes the design standards will be relevant to these parties given they will be required to provide relevant pensions data to the QPDS and they will wish to understand how the information is presented. The Money and Pensions Service (MaPS) dashboard does not have to follow the design standards but it will do so as far as possible.

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