Bank of England reports on effects of market shocks on schemes

The Pensions Regulator has published a press release welcoming the conclusions of the Bank of England that pension schemes are now more resilient to extreme market movements.

The Bank’s “system wide exploratory scenario exercise” aimed to examine how the UK financial system would respond to a market shock. It was the first such exercise to include non-bank financial institutions, such as pension schemes. 

The report found that the Regulator's April 2023 guidance on liability-driven investment had been effective, and recommended that it should stay in place "to support effective functioning of the gilt market".

The report also noted that authorities, including the Regulator, will be taking steps to understand and reduce risks in sterling and corporate bond markets. The Regulator will explore potential improvements to existing data collection to provide insight around intended aggregate asset sales. It is also planning to better understand the discretionary behaviour of pension schemes under stressed market conditions and whether the functioning of key sources of liquidity can be improved.