oscpacey on Nostr: The Liz Truss mini budget panic was said to be caused by pension fund managers ...
The Liz Truss mini budget panic was said to be caused by pension fund managers calling the BoE asking for intervention as they faced bankruptcy.
This causality is debated, however it’s interesting to unravel the nature of the pension predicament.
It wasn’t all pension funds as modern schemes should be fully funded (aside rehypothecation practices). The problem is the existing stock of Defined Benefit schemes which pay a fixed amount per year like an annuity. They invest their money in long term government bonds under a practice called Liability Driven Investment (LDI). DB funds don’t know how much they are on the hook to pay, as that depends on how long members live for, so they run statistical models, and invest ‘optimally’ to have enough value at any point in the future to pay obligations. When BoE started selling back its stock of bonds acquired via ‘Quantitative Easing’ in a process dubbed ‘Quantitative Tightening’ they devalued the market for the bonds the pension funds hold dangerously threatening their solvency.
As DBs have ended the stock of them falls every day as, sadly, members of course eventually die.
DB was unsustainable but there isn’t much stock of it left so actually as time goes by the pension industry is less precarious.
Oscar this is NOTHING to with Bitcoin!
True, but saving in a capped supply asset will give you a wicked pension. X
This causality is debated, however it’s interesting to unravel the nature of the pension predicament.
It wasn’t all pension funds as modern schemes should be fully funded (aside rehypothecation practices). The problem is the existing stock of Defined Benefit schemes which pay a fixed amount per year like an annuity. They invest their money in long term government bonds under a practice called Liability Driven Investment (LDI). DB funds don’t know how much they are on the hook to pay, as that depends on how long members live for, so they run statistical models, and invest ‘optimally’ to have enough value at any point in the future to pay obligations. When BoE started selling back its stock of bonds acquired via ‘Quantitative Easing’ in a process dubbed ‘Quantitative Tightening’ they devalued the market for the bonds the pension funds hold dangerously threatening their solvency.
As DBs have ended the stock of them falls every day as, sadly, members of course eventually die.
DB was unsustainable but there isn’t much stock of it left so actually as time goes by the pension industry is less precarious.
Oscar this is NOTHING to with Bitcoin!
True, but saving in a capped supply asset will give you a wicked pension. X