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Allison Schrager

Hardly a Surprise: Pension Funds Stoked the UK Rout

An outsized portion of British government debt is owned by pensions, so when those money managers misjudged risk, the turmoil spread quickly.

A weak foundation.

A weak foundation.

Photographer: Isabel Infantes/AFP


The UK's economic troubles appear to be a story of fiscal recklessness that's forced the nation's central bank to step in to stabilize crashing financial markets by buying up government bonds. Are we talking about the UK or Argentina? The real story is actually more complicated. It all comes down to pensions, furthering my pet theory that everything in life comes down to pension accounting.

The market for long-term government debt in the UK has always been a little funky. Their yield curve is normally concave, instead of upward sloping like most countries, because pension funds are big buyers of the debt. British pensions have £1.5 trillion ($1.65 trillion) in assets, and about 50% of British corporate defined-benefit assets are held in bonds. As of the first quarter this spring, pensions owned 28% of outstanding UK debt, with an especially heavy presence in the long end of the curve. Private-sector pensions hold just under £100 billion in gilts with maturities over 25 years.