Pension trustees and sponsoring employers should take steps now to protect pension schemes, RSM UK has said, amid concerns that the upcoming Autumn Budget could disrupt markets further.

The firm stated that the recent market turmoil around liability driven investment (LDI) has highlighted an “urgent need” for training and education for trustees around managing risks in volatile market conditions.

It also warned that further political and economic uncertainty could still disrupt the pensions market, particularly with the autumn Budget upcoming, urging trustees and sponsors to take steps to prepare now.

"With a £50bn fiscal hole to fill, it’s going to be a challenge for the government to keep public sector workers such as nurses happy on the pay and pensions front," RSM economist, Tom Pugh, stated.

“Depending on what’s announced, the potential for a backlash, and possibly strike action, could be high. If a backbench rebellion is triggered, the markets are unlikely to react well to this, potentially causing further pensions disruption.

"Issues around liquidity are also ongoing, although the recent reduction in gilt yields is likely to have helped."

RSM UK senior pensions manager, Nav Sarai, also suggested that part of the issue is that LDI funds are holding onto the capital calls they received following the mini-Budget crisis and not paying these back to pension schemes, even though the markets are currently calmer.

“This leads to the LDI funds effectively de-leveraging themselves to avoid any similar problems occurring," Sarai explained. "Schemes that had their liquidity sucked out of them are still having to disinvest from elsewhere to replace that liquidity in order to conduct business as normal.

"This means the overall investment position is still having to be adjusted by trustees to address the problems caused by the crisis.”

However, work is underway, as the firm noted that scheme lawyers are currently updating credit support documentation so that pension schemes can post other liquid assets other than cash as collateral in future, as many of the current legal documents state that collateral must be in the form of cash only.

Broader changes may also be seen in future, as Sarai suggested that the Work and Pensions Committee's recently launched inquiry into DB schemes with LDI could lead to increased regulatory requirements from The Pensions Regulator, and possibly supervision of LDI investments from the FCA.

Sarai continued: "Schemes may also be required to adhere to stricter rules around permitted leverage and requirements to hold higher levels of collateral. We may also see obligatory stress testing on leveraged LDI investments.

"The Pension Regulator may also require trustees to formally report this information as part of ongoing monitoring to avoid the liquidity issues seen in recent weeks."

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