A YEAR AFTER BUDGET CRISIS, UK DEBT FACES FRESH PENSIONS HEADWIND
Britain's pensions industry, Europe's biggest, is posing a new challenge to the country's 2 trillion pound ($2.5 trillion) government bond market a year on from the "mini-budget" crisis that put the sector at the centre of financial stability fears. Pension funds are big buyers of UK debt, known as gilts, but they are likely to step back just as the Bank of England (BoE) reduces its own holdings faster and debt issuance remains high, adding pressure on British borrowing costs.
Benefiting from the highest interest rates since 2008, pension funds are better funded to meet future payouts than they have been in years. To take advantage of this strength, funds are rushing to purchase bulk annuity policies from insurers, to whom they transfer pension liabilities along with some assets, reducing balance sheet uncertainty. Because insurers hold a lot less government debt than pension funds, favouring higher-return assets such as corporate debt, they are expected to sell some of the gilts they receive.