Following the chaos caused by the chancellor's tax-cutting mini-budget, a £1 billion project is the next to struggle for funding.
Following the collapse of the UK financial markets this week, the pension scheme trustees at the government contractor Serco were compelled to request emergency help from the firm in the amount of £60 million.
Serco's $1 billion pension plan is the most recent to try to raise money after a decline in the value of the pound and a collapse in the price of UK bonds prompted requests for fund managers to put up collateral for specialized financial products they had taken out to insure against fluctuations in the value of their investments.
These assets, known as liability-driven investments, or LDIs, are frequently employed by final-salary pension plans, which oversee more than £1.5 trillion in deposits. The recent decline in the value of UK government bonds and the pound, which was brought on by concerns about the government's capacity to pay for its tax-cutting mini-budget, has, however, created issues for pension funds since it has decreased the value of their assets. Investment banks have been asking pension funds for more collateral this week to make up for the mismatch between assets and obligations, forcing them to sell assets to quickly raise the funds.
Sky News was the first to publish the request from Serco's pension plan, which was made earlier this week. However, it is believed that the fund, which most recently showed a half-year surplus of £105.3 million, was not in danger of running out of money to pay out pensions.In response to widespread requests for funding from UK pension funds, the Bank of England on Wednesday intervened with a £65 billion emergency bond-buying plan.
This week, one investment bank projected that if the Bank had not intervened to support falling government bond prices, UK pension funds may have been required to provide up to £550 billion in collateral.
Markets have stabilized as a result of the package, but reports on Friday revealed that some pension funds were also selling stocks and corporate bonds to attempt to pay collateral demands on their LDI products. This raised fears that the value of such assets may also decrease.
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