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MPs to question regulator after Bank’s £65bn pension bailout

A pound symbol breaking the Bank of England in half - TMG
A pound symbol breaking the Bank of England in half - TMG

MPs are demanding answers from the regulator after thousands of pensions were threatened by plummeting gilt prices last week.

In the wake of Chancellor Kwasi Kwarteng’s mini-Budget, a sudden drop in gilt prices forced the Bank of England to take emergency action and buy £65bn of long-term government bonds to help calm the market.

The work and pensions committee confirmed today that it would be writing to the Pensions Regulator over “issues raised by the Bank of England’s intervention”.

The Pensions Regulator oversees more than 5,000 company-defined ­benefit plans, which account for the pensions of roughly 10m savers and have large investments in gilts.

The regulator has long encouraged the use of “liability-driven investment” (LDI) strategies that are intended to ensure that a pension fund always has enough money in its investments to cover the amount that it owes to members.

However, last week’s sharp drop in the price of government bonds left ­pension funds facing unforeseen ­margin calls, and any schemes unable to meet these demands risked defaulting or having their hedging ­positions closed.

A spokesman for the work and pensions committee said: “I can confirm that the committee will be writing this week to TPR about issues raised by the Bank of England’s intervention.”

Lord Wolfson, Next chief executive, said last week that his treasurer wrote to the Bank of England five years ago to warn that LDIs were a “time bomb”.

He said: “We don’t have LDIs. We not only said we wouldn’t do LDIs when we were being sold them by everyone who thought they were a brilliant scheme, we also wrote to the Bank of England to say that we felt it was destabilising.”