The Pension Protection Fund (PPF) has said that it cannot form a "meaningful estimate" of how much of the recent funding changes seen in defined benefit (DB) pension schemes arose from the liability-driven investment (LDI) market disruption.

Work and Pensions Committee (WPC) chair, Stephen Timms, previously wrote to the PPF to request more information on the impact of the LDI issues in autumn 2022 on the DB pension landscape.

The PPF's response explained that its data is based on schemes' most recent s179 valuations and, in many cases, will not be current, as schemes are only required to complete a s179 valuation every three years.

Indeed, the latest data provided by TPR from schemes’ annual returns includes valuations that have been updated since September 2022 for only 15 of our 5,051 scheme universe.

It also confirmed that, even when it does obtain data for the other 5,036 pre-1 October 2022 schemes, it will not be possible to form a meaningful estimate of how much of the funding changes arise from the LDI market disruption.

This is because there are many factors that affect the rolled forward assets and liabilities when moving to a new dataset, including changes in asset allocations/investment strategies, and contributions made into schemes by both employers and employees.

The PPF was also unable to provide an answer with any meaningful precision when asked how much of the £400bn loss in asset value as a result of the LDI episode it would expect to see restored if interest rates rose again, and an explanation of how this would happen.

The PPF also acknowledged that the divergence between the DB scheme data from the ONS and the PPF's 7800 index has been "exceptional" this year.

However, it suggested that this isn’t overly surprising as the ONS sample post-dates the LDI market disruption, whereas its data source pre-dates it.

"We are clear in our 7800 index publications that we don’t hold enough data to capture the structural changes to asset allocations, nor to capture changes to in any leveraged LDI portfolios (these factors have been particularly pronounced since March 2022) and, as a result, the impact on assets will often be less accurate than the ONS survey," the PPF stated.

"As both measures use different methodologies it is not possible to reconcile their outputs, and so, in the absence of more up-to-date scheme return data it is hard to know precisely what impact that would have on our view of wider scheme funding."

The PPF was also specifically about the impact of the LDI crisis on the Wilko pension scheme, sharing an update from the scheme trustee, which showed that the scheme had a £87.7m deficit on a buyout basis, pre-LDI market disruption in September 2022, increasing to £70.2m as at 12 July 2023.

The PPF also received confirmation from the scheme trustee that the scheme’s hedging exposure, whereby the scheme’s funding ratio was approximately fully hedged with respect to changes in interest rates and inflation using its LDI portfolio, was maintained throughout September 2022.

Consequently, the scheme was protected from the ‘snap back’ in yields following intervention from the Bank of England.

However, the PPF acknowledged that the scheme did face a substantial volume of collateral calls during this period, which resulted in it selling most of its more liquid growth assets.

It also confirmed that the scheme was subsequently advised that they were unable to maintain their existing hedge ratios based upon liquidity requirements at that point in time and with the risk of interest rates rising further, and decided to reduce their hedging ratios to 80 per cent in October 2022.

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