The Financial Markets

Part of 1. Questions to the First Minister – in the Senedd at 1:40 pm on 18 October 2022.

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Photo of Joel James Joel James Conservative 1:40, 18 October 2022

As the First Minister is aware, liability-driven investments use the equity in pension funds to borrow money. This borrowed money is then used to buy gilts, which in turn deliver fixed-rate interest over a set period. The major risk, however, is that if interest rates rapidly rise on gilts, as they have now, then pension funds have to acquire larger amounts of collateral to cover the money that they've borrowed, which leads them to sell their assets, including gilts. This is problematic when there is no buyer, as was the recent case when the United States issued an eye-watering $0.25 trillion for sale just over a week ago, which attracted investors who would normally have bought from the UK market. As the First Minister may remember, in his first budget in 1997, and despite warnings from the pension industry, Gordon Brown removed pension dividend tax credits from pension funds, the consequences of which are still felt today—[Interruption.]