FCA ‘not prepared’ for pensions chaos after Kwarteng mini-Budget

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FCA admits it was ‘unprepared’ for retirement chaos after Kwasi Kwarteng mini budget

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The head of the City Watchdog has admitted it was unprepared for the risk pension funds face from the surge in UK bond yields following Kwasi Kwarteng’s mini-Budget.

Nikhil Rathi, chief executive of the Financial Conduct Authority, told a House of Lords select committee that the threat was not “at the very top of the radar”.

Colleagues are investigating how a bond market sell-off following Kwarteng’s disastrous fiscal statement led to a pension fund crisis, resulting in a £65bn Bank of England intervention.

Liability-driven investment strategies were thrust into the spotlight in September in the wake of then-Chancellor Kwasi Kwarteng's disastrous mini-Budget

Liability-driven investment strategies were thrust into the spotlight in September in the wake of then-Chancellor Kwasi Kwarteng’s disastrous mini-Budget

The collapse in bond prices forced the mutual funds (Liability Driven Investment Funds, LDIs) used by some pension plans to scramble for cash.

Rathi explained that yields on UK bonds – which move in the opposite direction to prices – rose by 2.5 percentage points in just five days “which has never happened before at a key point in our history, at that particular risk has not been tested’.