GLOBAL - Pension funds run the risk of creating a "vicious circle" of demand for bonds, stated the Organisation of Economic Co-operation and Development (OECD).
"The greater the demand for bonds, the lower the yield, and the lower the yield, the greater the pension liabilities, given that liabilities are discounted using bond yields", claimed the OECD's latest edition of "Pension Markets in Focus".
Derek McLean, head of asset liability management and insurance at F&C, responded that it was "certainly" a consideration that pension funds should keep in mind.
"While it is by no means certain that demand will dominate supply to the extent that it creates a vicious circle, the current inversion of the yield curve in the UK is a feature that arises from the demand for long dated bonds.
"The risk for schemes is that with a demand-driven spiral down in yields, the first movers into LDI strategies will benefit, having effectively locked in any existing benefits, but those schemes that adopt LDI hedging strategies at a later stage will be worse off because falling yields will cause their solvency to plummet."
However, he insisted that F&C would still "strongly encourage" all pension funds to consider LDI approaches.
HMRC has confirmed providers operating relief at source pension schemes can continue to collect automatic tax relief at a basic rate of 20% under new Scottish Income Tax rules.
The Pensions Regulator (TPR) is seeking "improved" powers to set a schedule of contributions in defined benefit (DB) schemes in the government's upcoming white paper, it has revealed.
New regulatory rules which require providers and advisers to produce annuity illustrations will not solve the problem of consumer detriment as they are "fundamentally" flawed, according to Retirement Advantage.
Paul Budgen is set to join financial technology and auto-enrolment (AE) firm Smart Pension as director of business development.