The Government Actuary’s Department (GAD) has assisted the Work
and Pensions Select Committee with its inquiry into defined
benefit pensions with Liability Driven
Investments (LDI).
The Government Actuary, Martin Clarke, was pleased
to share his
perspectives on the LDI issue in response to the
Committee’s questions.
Pensions and investment
GAD’s knowledge and involvement with LDI is unique as we work
with schemes that use leveraged LDI. We also work with government
departments that support the pensions and investment industry.
Discussions on the LDI issue have taken place in trustee meetings
and in public forums. This improves the understanding of LDI for
all stakeholders in what has also been a valuable lesson in
governance.
Challenging role
The role of a trustee is challenging. Providing security to a
promised pension requires trustees to make decisions around
complex areas of investment, funding, administration and
accounting.
LDI is an example of such a decision, an instrument that is
intended to mitigate a funding risk but then introduces
operational risks. Trustees need to assess these risks to
understand the trade-off. That assessment will now be more
informed, even if still challenging to achieve a balance that
works for all stakeholders.
Such challenges are evident across pensions from trustees to
advisers to those that legislate, as a balance is sought to
provide an effective and proportionate solution.
GAD’s expertise
Investment consultant at GAD Christophor Ward, said: “GAD has
experience of both working with schemes and considering how
legislation and guidance is formulated. This is borne out of our
expert analysis and helping our clients to ask the right
questions.
“We look forward to continuing those discussions on improving the
security of the UK defined benefit pension landscape.”
