[Politics] Liz Truss **RESIGNS 20/10/2022**

[mikeyjh]

Liz Truss has spoken today to Ukraine's president about the ongoing crisis

Zelensky promised to provide all the assistance he could

 

[beorhthelm]

Ha ha. Think I understood. basically boils down to "pension funds were fine until the gilts moved so far and so fast that they could no longer keep up with correcting their liabilities". So BoE had to step in to put the brakes on and give them room to sort themselves out.

i read it as where they leverage anything, they use their gilt holdings as collateral. and something somthing floating long risk, fixed rate swaps, makes a hole; their collateral is same as their short position, makes the hole bigger.

 

[KZNSeagull]

We REALLY need Margot Robbie in a bubble bath to explain it all.

 

[KZNSeagull]

Ha ha. Think I understood. basically boils down to "pension funds were fine until the gilts moved so far and so fast that they could no longer keep up with correcting their liabilities". So BoE had to step in to put the brakes on and give them room to sort themselves out.

The tweet that the FT article links to explains it quite well I think.

[Tweet]1574660633877962753[/Tweet]

Still don't know how a pension fund could become insolvent though, that doesn't make much sense as the increase in yields this year means that most pension funds have soared. They may have liquidity issues and have to sell some assets to create liquidity but that doesn't make you insolvent.

 

[Westdene Seagull]

While on my dog walk in the last of the afternoon sunshine I was thinking ( danerous I know ) but the government are complaining about traders betting against the pound. Of course they do this to make money .... i.e. Profit. Now remind me who so long ago said "Profit isn't a dirty word" ? Ah, yes .......

 

[East Staffs Gull]

i read it as where they leverage anything, they use their gilt holdings as collateral. and something somthing floating long risk, fixed rate swaps, makes a hole; their collateral is same as their short position, makes the hole bigger.

I really don’t understand the pension issue. Gilts, particularly index-linked gilts, are the perfect investment for final salary pension schemes, because the schemes’ liabilities are discounted at the redemption yield of long-dated gilts. Schemes that are heavily invested in gilts will see the value of their liabilities move exactly in line with their assets. Falling gilt prices means increased gilt yields, therefore falls in the value of their liabilities.

 

[South Stand Bonfire]

You’re brave, too bloody scared to look at mine ….

Ditto! I’ll have a peak from behind the sofa in November.

 

[KZNSeagull]

I really don’t understand the pension issue. Gilts, particularly index-linked gilts, are the perfect investment for final salary pension schemes, because the schemes’ liabilities are discounted at the redemption yield of long-dated gilts. Schemes that are heavily invested in gilts will see the value of their liabilities move exactly in line with their assets. Falling gilt prices means increased gilt yields, therefore falls in the value of their liabilities.

If I have understood the tweet I posted above correctly, you are correct but as part of their investment strategy they have hedged their investments using other instruments, the premiums on which go up when the yields go up ( not in itself a huge issue), but as yields on 30 year gilts have shot up in a short period of time, it has caused a liquidity problem in paying their premiums. Overall, Defined Benefit Pension Plans have done extremely well this year with many having reached their targets years earlier than they thought they would.

 

[sparkie]

Can we send Truss & Kwarteng to the tower yet ?

I seriously considered sending Truss an invoice for the drop in my Pension Pot earlier.

Symbolic with no chance of redress but it would make me feel better.

 

[Weststander]

Mass insolvencies of pension funds? Surely that could only happen if a fund held all it's assets in gilts and it had to sell them to pay out the pensions but they now weren't worth enough to cover them all. That cannot possibly be right. What am I missing?

If that was likely, then the managers had broken a cardinal rule to diversify its investments.

The gilts (and nominal value) themselves won’t default.

After the initial sale, they’re traded, it’s the effective price fall that’s hurting.

 

[A mex eyecan]

Ditto! I’ll have a peak from behind the sofa in November.

Since i retired i have set the 1st of each month to deal with and check out finances. I’m making sure that i buy a bottle of malt on the 30th as I have no doubt will need reviving and calming down afterwards

 

[Guinness Boy]

The tweet that the FT article links to explains it quite well I think.

[Tweet]1574660633877962753[/Tweet]

Still don't know how a pension fund could become insolvent though, that doesn't make much sense as the increase in yields this year means that most pension funds have soared. They may have liquidity issues and have to sell some assets to create liquidity but that doesn't make you insolvent.

Because DB (Defined Benefit) is final salary and pays out based on the salary of the person over their employment, factoring in increases for inflation. The funds have these guaranteed payments as liabilities and, by law, have to invest in "safe" gilts and bonds.

So what happens when your liabilities increase due to a huge increase in inflation while your gilt values tank......

It's actually pretty simple and certainly the fault of the government.

 

[Kinky Gerbil]

We back in a Tory meltdown already?

 

[A1X]

[tweet]1575183568460189696[/tweet]

 

[Weststander]

Yet, my (2) advisors both have us in exactly that 60/40 split (I'm 50 rather than 64 so probably looking at a slightly different time scale), bonds have suffered a little but we're still up over a tincey bitthe last 12 months, bonds obv having an impact.... Opinions, opinions and all that. Now may be a good time to go in to bonds?!?

Similarly, UK equities will at some stage represent good value. Shell and BP didn’t overnight become inferior to Total or Exxon. All 4 still multinational cash generators.

 

[KZNSeagull]

Because DB (Defined Benefit) is final salary and pays out based on the salary of the person over their employment, factoring in increases for inflation. The funds have these guaranteed payments as liabilities and, by law, have to invest in "safe" gilts and bonds.

So what happens when your liabilities increase due to a huge increase in inflation while your gilt values tank......

It's actually pretty simple and certainly the fault of the government.

Gilt values have tanked but the yield has gone up. According to that tweet, many funds have reached their targets years in advance because of the high yields this year. It is not saying that funds cannot meet their pension payout liabilities, what it is saying is that some funds have short term liquidity issues to pay the premiums on their hedging instruments. I still don't see how that makes them in danger of becoming insolvent.

 

[Cotton Socks]

I know that the focus here is on pensions but is it safe to assume that my sons CTF has tanked as well? It's in a low-medium risk fund, I actually don't want to get out the paperwork & check it as I think I'm likely to be very annoyed that there is the potential there will be less in there than it started off with.

 

[Weststander]

Because DB (Defined Benefit) is final salary and pays out based on the salary of the person over their employment, factoring in increases for inflation. The funds have these guaranteed payments as liabilities and, by law, have to invest in "safe" gilts and bonds.

So what happens when your liabilities increase due to a huge increase in inflation while your gilt values tank......

It's actually pretty simple and certainly the fault of the government.

DB pension schemes hold £2.5trn of assets, £550bn of which are invested in UK index-linked gilts (the subject of this crisis).

The remainder is held in equities, property, corporate debt and other international forms of government debt.

 

[Weststander]

Gilt values have tanked but the yield has gone up. According to that tweet, many funds have reached their targets years in advance because of the high yields this year. It is not saying that funds cannot meet their pension payout liabilities, what it is saying is that some funds have short term liquidity issues to pay the premiums on their hedging instruments. I still don't see how that makes them in danger of becoming insolvent.

Index linked gilts only make up 22% of DB scheme assets.

 

[Weststander]

I know that the focus here is on pensions but is it safe to assume that my sons CTF has tanked as well? It's in a low-medium risk fund, I actually don't want to get out the paperwork & check it as I think I'm likely to be very annoyed that there is the potential there will be less in there than it started off with.

Invested in cash savings like my daughter’s, it would not have fallen.

If at some stage you’d taken the decision to choose to invest, then it depends on the funds you or your adviser chose.

People who didn’t diversify, investing in US tech stock funds for example, have seen huge falls over the last 11 months. Investors who opted for reliable dividend income funds have fared pretty well.