October 12, 2022

Pensions Regulator statement – managing investment and liquidity risk in the current economic climate


The Pensions Regulator has published a statement on managing investment and liquidity risk in light of the current volatility in market conditions. The statement sets out the actions that the Regulator expects trustees of DB and DC schemes to consider taking before the end of the Bank of England’s gilt purchase scheme (14 October 2022) and in the near-term as the market volatility continues. The Regulator will continue to monitor the situation and will provide further updates if necessary.

DB schemes

The statement notes that liability-driven investment (LDI) is an investment tool that has been in use for nearly 20 years and has played a significant role in helping DB schemes to manage funding risks and employer affordability. The increase in gilt yields during 2022 has resulted in an improvement in scheme funding for many DB schemes. However, the speed and extent of the increase at the end of September has resulted in increased collateral calls on LDI investments and consequential liquidity pressures for schemes with LDI investments. The Regulator expects trustees to:

  • Engage with their investment advisers to get an accurate understanding of their scheme’s position so they can focus on and prioritise the key areas of concern.
  • Review their operational processes to ensure they can respond quickly to changing circumstances where necessary.
  • Review the scheme’s liquidity position with their advisers, including understanding their sources of liquidity, reviewing any liquidity waterfalls and topping up or increasing collateral where appropriate. The statement notes that schemes may wish to discuss with the employer whether it might be able to provide additional collateral if necessary, for example via a loan. Our recent legal update provides more information on the issues trustees should consider in relation to such a loan.
  • Review the scheme’s liability hedging positions – whether or not the scheme has experienced liquidity pressures.
  • If they consider that maintaining a hedged position is appropriate, consider whether they have sufficient liquidity to meet collateral calls in a more volatile environment. If collateral calls would require trustees to dispose of less liquid assets with a significant haircut, trustees should consider obtaining advice on whether it would be appropriate to do so or whether to maintain a reduced level of hedging.
  • Review the scheme’s funding and risk position.
  • Consider how current gilt yields affect other areas of the scheme, for example the appropriateness of transfer value assumptions.

DC schemes

Although DC schemes are not subject to the collateral call issues facing DB schemes, the increase in gilt yields may have resulted in a reduction in the value of DC pots, particularly if members are heavily invested in gilts. However, higher yields are also likely to result in improved annuity rates. In addition, high inflation will impact members with significant cash allocations. The Regulator expects trustees to:

  • Maintain a long-term perspective when reviewing recent market volatility and performance. Pensions are long-term saving vehicles, and it is important not to make hasty decisions based on short-term volatility.
  • Review their investment strategy and operational factors involved in executing that strategy.
  • Communicate with members who are approaching retirement to make them aware of their options and to emphasise the importance of seeking regulated financial advice.
  • Encourage members to seek regulated financial advice or to speak to MoneyHelper before making decisions about their pension savings in light of the current market conditions.
  • Remain vigilant for scams and suspicious transfers.
  • Review their operational processes to ensure they can act quickly where necessary.


Trustees should note the Regulator’s expectations and comments, in particular the importance of taking advice as appropriate. Trustees will also need to ensure that they are getting sufficient information from their investment advisers and managers to enable them to make decisions and should keep a record of the questions they have asked their advisers and managers.

For more information, please speak to your usual Mayer Brown contact, Jay Doraisamy, Edward Jewitt or Duncan Watson.

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