Bank failure to police pension funds ‘made Liz Truss’s crash worse’

THE Bank of England’s failure to police pension funds made the mini-budget crash worse, an influential group of Lords has said, in a report likely to fuel debate over the collapse of Liz Truss’s premiership.

The upper chamber’s industry and regulators committee said the Bank, the City watchdog and The Pensions Regulator (TPR) all failed to sufficiently focus on the risks associated with so-called liability-driven investment strategies (LDIS) used by pension funds.

Lord Hollick, the Labour peer who chairs the committee, said the regulators “were all blindsided”, adding: “The reality is they all missed it.”

The intervention comes just days after Ms Truss hit out against the “economic establishment” for bringing her chaotic premiership to an end. She argued in an essay in The Sunday Telegraph that she was never given a “realistic chance” to implement her plans.

LDI strategies were at the centre of the market crisis late last year that forced the Bank to intervene and contributed to Ms Truss’s resignation. LDIS are derivatives meant to help insulate pension funds from the impact of inflation. However, the structure of the products meant that soaring bond yields in the wake of the mini-budget led to large cash calls on pension funds.

Lord Hollick said: “If it were not for the use of leveraged LDI, then it is likely there would only have been some volatility and a market correction, rather than a downward spiral in government debt markets that threatened the UK’S financial stability.”

In a letter to Andrew Griffith, the City minister, and Laura Trott, the pensions minister, the committee said the Government should look at giving the Bank’s Prudential Regulation Authority a role in overseeing pension schemes and give TPR a statutory duty to consider the impacts of the pensions sector on the wider financial system

A spokesman for the Financial Conduct Authority said: “During this unprecedented period of volatility, we worked closely with the Bank and the Pension Regulator to quickly improve the resilience of LDI portfolios.”

The Bank of England declined to comment.