BOE & Pensions Collapse?

[Deleted User]

Secret2ndAccount said:

Deleted_User said:

No idea about specifics but UK bond prices collapsed which is hurting DB pension schemes and puts their solvency into question. I would expect this to force companies with such schemes to be forced to provide additional funds to assure solvency. 

Don’t know why BoE feels it needs to help bond holders.  When it buys bonds, it throws more cash on the economy and fuels inflation. Which hurts bonds. A vicious circle. 

The pension funds were not just holding bonds. They were holding derivatives to protect against large movements in the price of bonds. They guessed wrong, bond prices moved rapidly the wrong way, and these derivatives were left massively underwater. The holders of the derivatives demanded a payment of cash as collateral to guarantee they would get paid (a Margin Call). The pension funds were not holding sufficient cash or liquid assets. They were faced with having to sell long-term holdings at giveaway prices to realise the necessary funding. The losses would have made them potentially unable to cover their liabilities. So the BofE stepped in to manipulate bond prices to make the margin call go away.
The BofE has a mandate to maintain the stability of financial markets, which is why they acted. The US Fed does not have such a mandate.

Thank you. And… Ouch!  Never thought pension funds would behave in this manner.  Given that their liabilities are well defined with clear timelines, they don’t have to take risk.  Unless they are underfunded.  More scary than I realized. 

Marcon

Bimbly said:

jim8888 said:

Looking at the replies, it's just more ridiculous scaremongering then. But the majority of people viewing the BBC website will take this as gospel with a headline that says " BOE in emergency move to calm markets". The media in this country are an increasing, irresponsible disgrace.

This report accurately reflects a statement released by the Bank of England announcing what action it is taking.

What would you prefer? That the media suppresses the truth? That is not a society that I want to live in.

I'd prefer to see the background to a headline as well as the attention-grabbing headline, so that an action can be put in context.  

LHW99

we also have a bit of a dilemma that my OH doesn’t work and therefore all the pension is mine really. 

Even if she is a non-earner you could start a pension for her and put in £2880 pa and she would get the tax relief paid in on top. Doesn't reduce your tax bill, but helps to equalise provision a bit. You could also fill her ISA / LISA as well as your own.

Jaguar_Skills

LHW99 said:

we also have a bit of a dilemma that my OH doesn’t work and therefore all the pension is mine really. 

Even if she is a non-earner you could start a pension for her and put in £2880 pa and she would get the tax relief paid in on top. Doesn't reduce your tax bill, but helps to equalise provision a bit. You could also fill her ISA / LISA as well as your own.

Yes we have a LISA each and that is a good point re her pension. 

Albermarle

Re the pension, I don’t know what really happens once I go over the £1.043m?

The LTA is currently £1,073,100 . In simple terms nothing happens until you actually start taking the pension.

You need to understand about uncrystallised and crystallised pension pots, to get your head around how it works.

Google it.

Sea_Shell

But when one does have a couple of Private Sector DB pensions, due to start paying out in a few years....it's a little worrying!!!

westv

Sea_Shell said:

But when one does have a couple of Private Sector DB pensions, due to start paying out in a few years....it's a little worrying!!!

But there's the PPF as a back up - although benefits may be a lot worse then expected.

L9XSS

JRM on SKY NEWS today being interviewed by Kay Burley regarding DB pensions and the BOE intervention. Worth watching. My previous employer has issued a statement on there pension website regarding funding of the scheme being healthy.........digging a bit deeper the funding had dropped by circa 350 million from 2020 to 2021 due to less than anticipated growth........god knows what its valuation is at this point......I’m due to take my benefit in a little over 4 years and it’s  the main part of my pension portfolio......

[Deleted User]

This is likely a harbinger of more bad news.  Unfortunately BofE action undermines their own fight against inflation so rates will have to go higher.  We haven’t had a tightening cycle like this for a long time.  One has to assume there will be a lot of illiquid assets, dodgy derivatives and bad debt.  What is next to fall? 

dunstonh

digging a bit deeper the funding had dropped by circa 350 million from 2020 to 2021 due to less than anticipated growth...

Snapshot dates would be important.  Winter 2020 had the coronavirus falls.
Late 2021 saw the start of the gilts falling and tech stocks going into major decline.

£350m to some DB schemes is a drop in the ocean.  To others it could be very serious.