🔎 Liz Truss has claimed her Government ‘became a useful scapegoat’ after the mini-Budget triggered a pension fund crisis, but experts say it was the Conservatives’ actions that caused it
Company pension funds can purchase Gilts in order to cope with a variety of risks, including fluctuations in interest rates and inflation, all of which affect the cost of providing pensions. They are also a way for the Government to raise money.
“There was always a risk that if interest rates instead went up, the finances of the scheme would be stretched, but ‘stress tests’ were undertaken to make sure that the fund would be able to cope with any reasonably plausible change in financial markets.” Most schemes had conducted stress tests for a situation in which there was a one per cent rise in long-term Gilt yields, but the four per cent increase exceeded the contingency plans in place.
The Bank’s deputy governor said if they hadn’t some pension funds would have collapsed within hours and risked a “spiral” of ever-higher interest costs on Government debt.
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