The Pensions Regulator (TPR) has welcomed plans announced by the Bank of England (BofE) to "restore orderly conditions" through temporary purchases of long-dated UK government bonds.

The Bank of England announced the gilt market interventions today (28 September) on financial stability grounds, after gilt yields saw an "unprecedented" surge amid the market reaction following the Chancellor's emergency mini-Budget.

A spokesperson for TPR, said: “We are monitoring the situation in the financial markets closely to assess the impact on DB pension scheme funding.

"We welcome steps announced by the Bank of England to restore orderly conditions through temporary purchases of long-dated UK government bonds.

“We again call on trustees of DB schemes and their advisers to continue to review the resilience and liquidity of their investments, risk management and funding arrangements, and plan accordingly to protect the interest of scheme members.”

Industry experts had also previously urged pension trustees to 'brace' for a new market environment in light of the surge in yields, with XPS highlighting the recent gilt market movement as "the most consequential event for pension schemes' investment strategies since the onset of the coronavirus pandemic".

Barnett Waddingham partner, Ian Mills, also argued that the recent increases "have been on a scale and level of ferocity unlike anything seen since the mid-1970s", pointing out that while the BofE intervention has caused an immediate sharp drop in gilt yields, they are still "significantly higher" than the levels in the middle of last week.

However, Mills clarified that while this has been mostly good news for DB pension schemes, many schemes who have been hedging this risk, protecting themselves against the risk of falling yields increasing their liabilities, will have faced challenges.

"Whilst this strategy has been very successful over recent years as UK yields have hit low after low, the operational risks of the strategy have, for some, crystallised in recent days," he explained.

"As yields rise the hedges need to be collateralised with cash, and some schemes have started to run low of cash and other liquid assets. The vast majority of schemes have been able to rebalance their asset portfolios quickly enough to raise the cash needed, but some schemes haven’t.

"These schemes have been forced to unwind their hedges, and in some cases at the worst possible moment.

"After the Bank of England’s announcement this morning yields fell back sharply – schemes that were forced to unwind hedges this week may well have effectively locked-in losses to their funding positions."

However, despite these concerns, Mills clarified that the "vast majority" of DB schemes have successfully navigated this period of heightened volatility and have generally come out the other side in a better funded position.

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