This article was written by Caius Mills, solicitor, in Burges Salmon's Pensions Disputes team. 

In January 2023 (here), we wrote about the fallout of the LDI (liability-driven investment) crisis following the Truss administration’s mini-budget of September 2022 and noted the potential area of scrutiny concerning the actions of certain pooled funds. Whilst many schemes managed to navigate the negative impacts of the crisis, some suffered notable reductions in funding levels and this has not been ignored by the Pensions Regulator (TPR) or Prudential Regulation Authority. 

Now, in late 2024, the repercussions of the LDI crisis are still being felt. Speaking to the Times, Neil Bull, director of market oversight at TPR has confirmed that TPR has “put in place measures which mean that any future stress event can be managed.” These measures, designed to build resilience against future market shocks, include requiring trustees and employers of defined benefit (DB) schemes and hybrid funds to assess and report on the use of LDI funds in their schemes.

TPR requires each occupational DB scheme and hybrid fund to complete an annual scheme return and this has now been updated to gather further information around leveraged LDIs, with additional questions for trustees to answer about their scheme’s use of LDI. In particular, the new look scheme return asks each scheme that uses leveraged LDI to confirm (i) the identity of the asset manager providing the fund, (ii) whether the fund is pooled or segregated, (iii) the net asset value of the mandate, and (iv) the scheme’s ability to meet margin calls. This increased scrutiny of LDI holdings is likely to be particularly pertinent for those schemes who did suffer losses as a result of the 2022 crisis. 

Over two years on from the event, schemes should now be more able to stand back and assess their position – was any reduction in scheme funding levels caused by the crisis temporary and has it recovered as markets stabilised, or is there an actionable loss here?  Trustees and employers with concerns about their LDI investments should reasonably be considering proactive steps now to investigate their positions, including reviewing their governance strategies and relevant contracts. 

The landscape is continuing to evolve and staying informed and prepared will be key to navigating these challenges.

Our Pensions Disputes team can advise you on LDI issues and other contentious pensions matters, so should you wish to understand how we might be able to help we would encourage you to get in touch.