The pensions watchdog ‘massively’ overstated the assets of workplace retirement schemes by £327 billion in a move that made its funding levels look much stronger than they were, The Mail on Sunday can reveal.
The revision is far bigger than previously reported and means there is less in the pot from which to pay the pensions of millions of scheme members.
It also makes it less likely that funds will be bought out by insurers because their funding is worse than expected.
The huge error by The Pensions Regulator (TPR) was made as pension funds reeled from Liz Truss’s 2022 mini-budget which exploded a ticking timebomb of hidden borrowing at the heart of the financial system.
It took an emergency £65 billion bailout by the Bank of England to defuse the damage caused by liability driven investment (LDI) strategies which forced funds to dump assets such as shares to stave off collapse.
TPR regulates the pension schemes of workers to ensure there is enough to fund their nest eggs. It is also responsible for reducing the risk of schemes ending up in the industry lifeboat Pension Protection Fund (PPF).
Crisis: The revision is far bigger than previously reported and means there is less in the pot from which to pay the pensions of millions of scheme members
Both TPR and the PPF admitted last month they had made cuts to the valuations of £1.2 trillion of assets held in defined benefit schemes used to pay the pensions of their nine million members.
The PPF wiped £283 billion off its funding level estimates for these schemes, plunging them into overall deficit on one key measure. It insisted its funding position was ‘strong’. But industry expert Con Keating, of Brighton Rock, found in 2023 TPR valued pension assets at £1.5 trillion – £327 billion higher than the more accurate estimate by the Office for National Statistics.
‘The declines in asset values reported by these bodies were extremely large and the differences in reported values were also significant,’ he said.
The PPF and TPR said they hadn’t taken account of tens of billions of pounds in pension benefits paid by employers to scheme members on retirement.
But Keating said that didn’t explain the scale of overestimates, adding that the regulators had ‘massively overstated’ assets and ‘understated the magnitude of the 2022 market crisis,’ he added.
Borrowing costs have soared this year, surpassing those hit at the height of the mini-budget, over concerns Chancellor Rachel Reeves will break her own fiscal rules unless she raises taxes again or slashes public spending.
Experts say a repeat of the LDI crisis is unlikely because pension funds have put safeguards in place to protect themselves against a sell-off in bonds.
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