Bank of England warning: Pension fund support to end – Is your retirement at risk?

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Andrew Bailey, the Governor of the Bank of England, clarified the emergency bond-buying scheme to help pension funds will not be extended. This scheme was brought in to assist retirement funds following the market volatility caused by the Chancellor’s mini-Budget. The central bank’s boss told pension funds they only have three days left, until Friday, to address the situation.

As a result of this statement, the pound dropped significantly against the dollar with investors showing disappointment that the scheme will not be extended.

Earlier today, the Bank of England began purchasing index-linked gilts, which are government bonds used by pension funds with interest payments in line with inflation.

Previously, the financial institution had been buying long-dated gilts, which make up a large proportion of retirement funds, to ease market concerns.

Following this, the rate demanded to hold Government debt rose as pension funds attempted to raise billions to meet cash calls.

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Speaking to the Institute of International Finance, Mr Bailey warned that the current bond support has to be only a temporary measure.

He said: “We have announced that we will be out by the end of this week. We think the rebalancing must be done.

“And my message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.”

The ongoing financial turmoil has resulted in renewed anxieties over the state of pension funds in the UK and whether they can weather this storm.


Laith Khalaf, the head of investment analysis at AJ Bell, reminded those approaching retirement the majority of pension funds will not be affected by this volatility.

Mr Khalaf explained: “While the Bank of England, the Treasury and pension schemes seek to find a way through the turmoil, individual savers might legitimately be wondering if their pension is safe.

“Most people nowadays hold defined contribution pensions and the key thing to understand here is that these are not the types of pension scheme thrust into the headlines in the last two weeks.

“Defined contribution pensions may hold some bonds, but they will mostly be invested in equities, with the exception of annuity hedging funds.

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“This means in general their exposure to the gilt market is limited.

“The bond sell-off has also been accompanied by falling equity markets this year and so most people’s pension pot will be smaller than at the beginning of 2022, but after a very long period of growth.

“This is simply the normal waxing and waning of markets and not something to be too worried about, especially seeing that pension savings are long-term and receive regular monthly contributions, which are now buying in at lower prices.

However, the finance expert cautioned those with a defined benefit are more at risk but still enjoy “seven layers of protection” from damage.

He added: “These schemes are known as ‘gold-plated’ for a reason, because not only are they generous, but they are guaranteed by the employer, or ex-employer, of the pension member.

“So even if the pension scheme doesn’t have enough assets to cover its liabilities, it can ask the employer to put more money in.

“The worst-case scenario is if the pension scheme doesn’t have enough assets to cover its liabilities, and in addition the employer goes bust.

“But even in this situation, the scheme will fold into the Pension Protection Fund (PPF), which will provide benefits to savers at, or close to, the promised level.”

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