UK’s Pension-Fund Tumult Was Years in the Making
- Low interest rates placed stress on crucial funding ratios
- Asset managers turned to leverage, setting them up for trouble
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If Rome wasn’t built in a day, neither was the current turmoil in the UK’s pension-fund industry. While hardly anyone gave what seemed like a staid industry any thought before Chancellor Kwasi Kwarteng unveiled his fiscal plans last month, a careful scrutiny of the past years will show that a potent land mine had, in fact, been planted long ago.
At the heart of trouble was the recent surge in gilt yields, particularly at the long end. For instance, the yield on 30-year gilts climbed more than 100 basis points in the space of just a couple of days after Kwarteng unveiled his now-notorious “mini budget” -- almost three times the increase that we saw in the whole of 2021.