Pension schemes 'can cope' with Pound's fall and UK borrowing cost rise as it's no Truss 'mini-budget' crisis
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Pension schemes are in a “robust position” to deal with the soaring cost of Government borrowing and falling Pound, say experts. Sterling fell to a fresh 14-month low on Monday, while UK government bonds, also known as gilts, continued to see 10-year yields hit highs not seen since 2008, and 30-year yields were at a record going back almost three decades.
The economic woes piled fresh pressure on Chancellor Rachel Reeves who has vowed to stick to her fiscal rules and still has the “full” backing of Sir Keir Starmer. But she is facing growing criticism from business chiefs and Opposition parties over her autumn Budget of £40 billion of tax rises, some £30 billion more borrowing, to plough around £70 billion more into public services, particularly the ailing NHS.
Gilt yields are a key indicator of market confidence, moving inversely to bond prices, and there were warnings that mortgage rates could rise. There has also been speculation over potential impacts for pensions from the gilt market routs, with comparisons being drawn with the fallout from former Prime Minister Liz Truss’s 2022 mini-budget when the Pound was sent crashing due to an acute sell-off in gilts.
Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, said: “We are not experiencing the rapid and disorderly market conditions that caused the last gilts crisis. “As gilt yields rise or fall pension funds will typically adjust their collateral holdings. Given recent rises, and in keeping with guidance from regulators following the mini-budget crisis, schemes are required to hold increased buffers to withstand market volatility - taking these steps is the prudent thing to do.
