Bank of England gilt purchase intervention concluded

The Bank of England's gilt purchase intervention concluded on 14 October 2022, the Office for National Statistics (ONS) has said, meaning the effects of, and responses to, rises in gilt yields continued into the fourth quarter of 2022¹. The ONS published the assessment in its statistical bulletin on funded occupational pension schemes for October to December 2022, released on 22 June 2023¹.

The bulletin states that movements in private sector defined benefit and hybrid (DBH) assets, liabilities and derivatives between 30 September and 31 December 2022 suggest schemes deleveraged, likely in response to increases in gilt yields seen in late September to early October 2022¹. It records that a sharp increase in gilt yields prompted short-notice collateral calls on liability driven investment (LDI) related investments held by schemes¹.

The figures cover the quarter in which the intervention ended. Private sector DBH scheme total assets excluding derivatives fell by £118 billion (8%) between 30 September and 31 December 2022, continuing falls seen in the previous three quarters¹. Direct holdings decreased by £100 billion to £797 billion over the same period¹. Private sector DBH LDI pooled fund holdings increased by £33 billion (25%) between those dates, which the ONS says partly reflects an increase in the value of gilts¹.

Source: ONS, Funded occupational pension schemes in the UK: October to December 2022¹

Repurchase agreement (repo) liabilities, the main borrowing mechanism for pension schemes, fell by £52 billion (26%) between 30 September and 31 December 2022¹. The ONS says the decrease is likely because of reduced borrowing, given that changes in gilt prices would otherwise have been expected to increase repos over the period¹. The 10-year gilt yield fell from 4.10% to 3.73% between those dates¹. Private sector pension schemes' holdings of central government and corporate bonds decreased by £29 billion (7%) and £18 billion (15%) respectively, and cash and cash equivalents and receivables fell by £18 billion (19%) and £19 billion (66%)¹.

Across the whole of 2022, the market value of private sector DBH schemes fell by £591 billion (32%), while the market value of public sector DBH and private sector defined contribution (DC) schemes combined fell by £50 billion (7%)¹. The ONS attributes the larger percentage fall for private sector DBH schemes mostly to greater exposure to gilts¹. Illiquid asset holdings were published for the first time, showing private sector DC schemes hold a smaller proportion of illiquid assets than defined benefit and hybrid schemes¹.

Why it matters for households

The data describe the funded occupational schemes that hold workplace pensions, including defined benefit schemes promising a set retirement income and defined contribution schemes whose value depends on investments. Funded schemes for public sector employees such as the Local Government Pension Scheme are included, but unfunded schemes such as those for civil servants, teachers and NHS staff are not¹. The ONS notes that its market value estimates do not consider pension entitlement liabilities, which are required for estimates of schemes' total funding level¹.

The quarter covers the period after the Bank of England's gilt purchases ended on 14 October 2022, so the asset sales, reduced borrowing and collateral calls recorded in the figures are responses to gilt yield movements that continued past that date¹. The bulletin also notes a possible divergence in LDI strategy response between segregated (single scheme) LDI and LDI pooled funds¹. The response rate for the quarter was 82% at the period of closedown¹.

What happens next

The ONS bulletin has a next release date of 21 September 2023¹. It states that all estimates up to and including Quarter 4 2021 will not be subject to further revisions¹. No further detail on the intervention's aftermath beyond the fourth quarter of 2022 has been reported in this bulletin.