Gilt market crisis could offer surprising upside for pensioners

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An economics commentator has pointed to the surprising upside of a gilt market crisis for pensioners. The gilt market – that is, of Government bonds in which savings can be invested – took a hit following Kwasi Kwarteng’s ‘mini midget’ late last month.

Following the new Government’s recent economic announcements, financial paper Bloomberg commented that Liz Truss “has made the most turbulent debut of any British prime minister in peacetime”.

It added: “In just three weeks, her administration has been battered by a crisis of confidence in her policies that have triggered a collapse in the pound and a surge in borrowing costs that threaten to push the UK toward a deep recession and a housing market crash.”

There was particular concern over the state of UK pension funds.

The Bank of England stepped in to buy bonds in an attempt to prevent a sale that could put some pensions at risk.

Economic commentator Tony Nangle said that given recent economic happenings, “it sounds reasonable to infer… that UK pension schemes are in a pretty dark place”.

He added, however, that there are reasons to be hopeful.

Writing in the Financial Times, Mr Nangle insisted that “if you tilt your head just so, systemwide funding ratios have rarely looked better”.

He said: “What has happened to pension fund deficits as yields rose? The present value of the liabilities have collapsed.

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“Asset values have hardly flourished, but they have fallen less than the present value of liabilities.

“The net result is ballooning surpluses all around.”

Mr Nangle concluded that “DB pension funds might actually be in a better place than you might’ve thought…

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“Unless (paradoxically) the gilt market rallies.”

The commentator also noted that we are “not quite home and dry” just yet.

Ed Conway of Sky News commented that Mr Nangle has provided “that rarest [of] things in the current moment: a little glimpse of hope, rather than despair”.

Rupert Harrison, former Chair of the Council of Economic Advisers, also commented in a post on Twitter: “A key point buried in here is that if the government can regain credibility then the same dynamics could work in reverse: falling gilt yields could drive more buying by pension funds to build hedges back up.

“But regaining credibility is crucial.”

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