, which monitors the roughly 5,000 schemes in the UK, estimates 750 of them are in deficit. Fears of a repeat of the recent run on LDI strategies has put pressure on pension fund managers and trustees. Many have been left with a difficult decision: either trade out of LDIs entirely; or stick by them but opt for less aggressive investment strategies that require significantly more capital to be injected. Trading out of LDIs completely does not seem to be an option, according to Lane, Clark & Peacock (LCP). It surveyed 400 trustee and company representatives earlier this month, 90pc of whom said LDI strategies will continue to have a role to play. However, Steve Hodder, a partner at the consultancy, says there was 'clear acknowledgment that LDI strategies will need to be evolved for the environment we now find ourselves in'. Toning down LDI investments, which will likely require companies to inject more capital into their retirement funds, will have serious implications, Konotey-Ahulu says. 'LDI is a highly effective way of stabilising and repairing a pension scheme's deficit so that the company does not have to worry about whether it will have to make additional contributions into the pension scheme instead of paying dividends or investing in growth and innovation,' he says. The 750 or so pension schemes that are underwater may now feel they have missed their chance to turn a deficit into a surplus. In the early-noughties, Britain's pensions were in a mess. Under Tony Blair and Gordon Brown, Labour had brought in new laws forcing company boards to look at their retire){kind=link}
Latest ‘demonisation’ could have disastrous consequences for pension trustees
As the dust settles on one crisis, fears are growing that the pensions industry is in danger of unwittingly lurching into another.
Economic Armageddon was on the horizon just weeks ago. The Bank of England was forced to step in amid warnings of a “material risk to UK financial stability” in the wake of a run on pension schemes likened to that of the crisis facing Northern Rock before its collapse in 2008.
Liability-driven investments (LDIs), a central pillar of pension investment strategy over the last two decades, have been widely blamed for the crisis.
Experts now fear that their “demonisation” could have disastrous consequences for pension trustees and company boards alike. Trading out of LDIs risks stranding hundreds of UK final salary pension schemes that are in deficit, they say.