The Bank of England’s emergency action may need to be extended beyond this week to help manage market turmoil, according to a leading pensions industry body.
The Pensions and Lifetime Savings Association (PLSA) said a “key concern” of pension funds was that the bond-buying scheme should not be ended too soon.
The Bank had been forced to step in to buy up government bonds after the market turmoil following chancellor Kwasi Kwarteng’s mini-Budget left some pension funds close to collapse.
The central bank has announced that it will double the daily limit on its gilt-buying scheme to £10bn – and widen its scope to include index-linked gilts – ahead of an “orderly” close on 14 October.
The PLSA – which represents pension schemes providing a retirement income to more than 30 million savers – suggested the emergency action should continue until at least the end of October.
It said “a key concern of pension funds since the Bank of England’s intervention has been that the period of purchasing should not be ended too soon”.
The industry body added: “For example, many feel it should be extended to the next fiscal event on October 31 and possibly beyond, or if purchasing is ended, that additional measures should be put in place to manage market volatility.”
The PLSA welcomed the Bank’s “continued steps to ensure the orderly operation of the gilt market” and said that members of defined benefit pension scheme should be reassured that their pension benefits were safe despite “operational challenges”.
The body said market turbulence has put “significant stress” on the gilt market and pension funds using LDI (liability-driven investment). The body said the majority of pension funds used LDI in a “prudent manner” and have taken steps to strengthen further their financial resilience.
Sir John Gieve, the Bank of England’s former deputy governor for financial stability, said the Bank could be forced to continue its bond-buying programme for a “couple more weeks” beyond Friday.
“The [bond market] moves yesterday must have alarmed them,” Sir John told BBC Radio 4’s Today programme – who said the “underlying move came on the back of the announcement of huge amounts of extra borrowing” from chancellor Kwasi Kwarteng.
Sir John said the pressure was still on the chancellor to reassure the markets when he shares his fiscal plan on 31 October.
“He’s actually got to now produce a set of projections which add up. Now it’s one thing to say that, can he actually deliver that? Does the parliamentary party believe in that? All the difficult decisions have still got to be taken.”
James Athey, investment director at abrdn insurance firm, said the Bank of England may find itself “trapped” in its bond-buying programme, saying “neither weakness nor volatility have meaningfully subsided in the gilt market”.
And Sandra Holdsworth, from Aegon Asset Management, told the Financial Times that “two interventions in 24 hours is pretty extraordinary” – saying problems in the pension industry was “much bigger than anyone thought a week ago”.
Former pensions minister baroness Ros Altmann said the Bank should completly halt its plan to offload £80bn of gilts to reduce its balance sheet of bonds built up through quantitative easing (QE).
As part of its emergency action launched late last month, the Bank said it would postpone this plan – known as quantitative tightening (QT) – until the end of October, but Baroness Altmann warned this may not be enough.
She said: “With £80 billion of gilt sales overhanging the market, there’s every likelihood the market will plunge again. The Bank must put its QT on hold … not telling markets that it isn’t about to step into the market with £80 billion of sales would invite further chaos.”
Deputy prime minister Therese Coffey insisted pensions were safe despite the Bank of England’s warning. She told BBC Breakfast: “I’m absolutely confident pensions are safe.”
Labour’s shadow Treasury minister Pat McFadden said news that the Bank of England “has been forced to step in for a second day running to reassure markets shows the government’s approach is not working”.