4 Oct 2022

Market events and implications for SPS

Following the "mini budget" on 23 September, the prices of UK government bonds (“Gilts”) fell sharply as markets reacted negatively to the additional borrowing needed to finance the new Conservative government's growth-oriented policies. The scale and speed of the fall in Gilt prices reportedly resulted in some pension schemes who adopt Liability Driven Investment (“LDI”) strategies struggling to meet collateral calls, resulting in forced sales of other assets and some hedging positions needing to be closed. This placed further downward pressure on Gilt prices and prompted the Bank of England ("BoE") to intervene on 28^th September to stabilise the market. The BoE announced a time limited programme to purchase up to £65bn of long-dated Gilts, enabling institutions to meet collateral calls and/or close hedging contracts in an orderly manner. The BoE announcement triggered a strong recovery in Gilt prices, which has eased the situation for many institutions.

Implications for SPS

In September 2021, the Scheme purchased a bulk annuity contract with Legal & General (“L&G”) whereby L&G provides the Scheme with a regular income equal to the benefits of all SPS members. This arrangement is unaffected by recent market events and has continued to operate as expected with no disruption to pension payments.