Pension fund turmoil costs job of UK finance minister
October 14, 2022 - Pension schemes use liability-driven investments (LDIs) to protect from falling government bond yields. When yields spike, they are hit with margin calls – demands for funds – to cover their losses.
British Chancellor of the Exchequer Kwasi Kwarteng has been fired from his job as Prime Minister Liz Truss waters down her proposals to cut taxes aggressively.
Truss is to make a statement at a news conference in Downing Street on Friday (October 14) announcing that she’s making a U-turn on her government’s £45 billion (€50bn) tax-slashing proposals.
Thirty-year gilt yields fell to 4.255 per cent Friday as investors waited for Truss’s statement, and the pound slumped 1.18% against the dollar to trade at $1.1197. The pound is down more than 17 per cent against the dollar since the start of the year.
Kwarteng is out after just 38 days as finance minister -- the second shortest-serving UK chancellor on record. The shortest serving chancellor, Iain Macleod, died of a heart attack 30 days after taking the job in 1970.
Since 2019, Britain has had four chancellors, including Nadhim Zahawi, who lasted 63 days during a short-lived reshuffle under Boris Johnson, and Sajid Javid, who served 204 days -- the fourth shortest tenure since the Second World War.
In Kwarteng’s resignation letter to Truss, he said: “You have asked me to stand aside as your chancellor. I have accepted.”
He finished his letter by saying they have been “colleagues and friends for many years,” and he believes her “vision is the right one.”
- Gilts crisis undermines use of pensions for economic growth (Bloomberg)Gilts crisis undermines use of pensions for economic growth (Bloomberg)
- Explainer: Why are Britain's pension schemes dumping gilts?
- United Kingdom 30-Year Bond Yield Historical Data (Investing.com)
- Introduction to liability driven investment (Insight Investment)