7 February 2023
Today, the House of Lords Industry and Regulators Committee has published its latest findings on the current Liability Driven Investment (LDI) crisis.
Commenting, LCP partner Jonathan Camfield, who gave evidence to the Work and Pensions Committee inquiry into Liability Driven Investments last year, said:
"There is a strong case for further improvements to the regulation of pension scheme investment strategies, following the turmoil of last autumn. Individual pension schemes may well have made decisions that made sense in isolation, but these had knock-on impacts for the financial system as a whole, and this is an area where closer regulatory oversight would have led to a less bumpy ride. However, the Bank of England already has a role to look at system-wide issues such as this, and, working in partnership with the Pensions Regulator could be tasked with making sure that the system as a whole is less vulnerable to shocks going forward.
"I am however sceptical that the underlying cause of these problems was the accounting rules which apply to pension schemes. Pensions schemes decide their investment strategy primarily on the basis of the law and regulations which come from the Government and the Pensions Regulator, and it was this framework which was the primary driver for the use of leveraged LDI in the first place".