A British parliament panel on Monday launched an inquiry into the defined benefit pension schemes with liability-driven investments (LDIs) to ascertain whether they have adequate regulation to protect pension funds’ value.

The work and pensions committee inquiry will examine the impact of the recent volatility in gilt yields and intervention by the Bank of England (BoE) as well as the role of the pensions regulator in monitoring the use of LDIs and whether these schemes have proper oversight arrangements in place.

LDIs, a growing segment of the country’s pensions sector, were earlier this month forced by regulators to build up their liquidity defences after the BoE had to buy UK government bonds to avoid the funds from collapsing due to a spike in gilt yields. read more

UK bond yields rocketed in just a few trading sessions last month following a “mini-budget”, which triggered a rush for cash by pension funds to cover their LDI derivatives positions.

“It (inquiry) will also look at the role of trustees and the regulator in ensuring proper governance arrangements and whether LDIs are still fit for purpose for use by defined benefit schemes,” said Stephen Timms, parliament member and chair of the work and pensions committee.

The committee also intends to undertake follow-up work with a further inquiry in the new year looking at defined benefit schemes more widely.

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