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Money talks. That’s what Thomas DiNapoli, comptroller of the state of New York, is counting on when it comes to LGBTQ+ protections in the workplace.
In what seem to be the first ever moves of their kind, DiNapoli’s New York State Common Retirement Fund, which manages $260 billion in assets, is pushing for more details about companies’ human capital management strategy work related to LGBTQ+ employees.
In proxy statements published this month, $45 billion Lennar Corp. and $13.5 billion International Paper disclosed matching shareholder proposals from the retirement fund. The proposals are backed by a supporting statement explaining that demographic shifts show that 20.8% of Gen Z identifies as LGBTQ+, which is twice that of the 10.5% of millennials who identify that way. Furthermore, a third of people who identify as LGBTQ+ report experiencing harassment or discrimination in recent years and, nearly half, 45.5%, report facing discrimination at some point in their lives.
Lennar and International Paper have recommended that investors vote against both proposals.
The proposal is a new front in some investors’ quest to get more expansive data on diversity from companies, and similar efforts have been fruitful in obtaining more granularity on policies related to gender, race, and ethnicity. Now, investors are expanding their focus to include LGBTQ+ employees. Investors have used the more detailed reporting in recent years to hold boards and C-suite teams to account for public diversity pledges on investments, promotion among senior executive ranks and recruitment of new employees.
Accordingly, companies should tell investors whether they have equitable employee benefits, non-discrimination policies and employee support groups, the New York fund wrote in the statement. In the proposals at both Lennar and International Paper, New York referred to the companies’ own disclosures about inclusivity in the workforce, respect for diverse backgrounds and their general statements about fostering high-performing workplace cultures via their diversity efforts. New York holds about $15.8 million in International Paper stock and $33 million in Lennar stock, according to the fund’s 2023 asset listing.
Both proposals quoted a 2019 report from the U.S. Chamber of Commerce Foundation, Business Success and Growth Through LGBT-Inclusive Culture. “Companies that adopt LGBT-inclusive practices tend to improve their financial standing and do better than companies that do not adopt them. Additionally, employees, regardless of their sexual orientation or gender identity, express greater job satisfaction at companies where these practices are in place.”
Miami-headquartered homebuilder Lennar’s board wrote that the company was “built on a culture of inclusivity” and brings together the best talent to drive the success of the “Lennar family.” The board said its “Everyone’s Included” initiative represents an evolution of that focus, including an advisory council that brings together diverse cross-representation. Its code of ethics and business conduct already specifically prohibit discrimination and harassment on the basis of “color, religion, sex, sexual orientation, gender identity or expression, national origin, age, disability, veteran status, genetic information or any other legally protected status,” the board said. “Producing the proposed report is unnecessary and inefficient.”
International Paper board members said its annual report discussed diversity and inclusion initiatives, including its long-term goals. “Among the Company’s primary Vision 2030 Goals, the Company aims to promote employee well-being by providing safe, caring, and inclusive workplaces and strengthening the resilience of its communities,” the board said (emphasis in original).
The company also has a global diversity and inclusion council and employee networking groups. “Requiring the Company to produce an additional report limited to a subset of its overall diversity, equity and inclusion efforts would prove unduly burdensome for the Company, divert time and attention of Company management, and give rise to undue expenses, all while providing little to no additional value considering the Company’s robust diversity, equity and inclusion initiatives, culture and disclosure practices, including with respect to LGBTQ+ matters,” the IP board said.
The proposals are an escalation from the fund’s efforts last year that involved writing letters to 55 portfolio companies that signed the Human Rights Campaign and Freedom for All American Business Statement on Anti-LGBTQ+ Legislation. The campaign prompted new discussions about workplace policies, the state said in an annual report.
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Amanda Gerut
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I recently graduated with my master’s degree and am seeking full-time employment at age 53. I want to know what is the best way to invest some of my earnings when I begin receiving a paycheck. I expect to have an annual salary of between $80,000 and $90,000.
For religious reasons, I cannot invest to earn interest, but business-related ventures such as stocks are acceptable. I am planning to set aside up to $1,000 per month for investment purposes, so that I can build some retirement funds. What are my options?
First-Time Investor
MarketWatch illustration
Congratulations on your master’s degree. You have already made the best investment you can make — one in yourself, your education and your future. It takes patience, guts and stamina to go back to college in your 50s, and you should be very proud. You were one of about 505,000 students in college ages 50 and over, representing less than 4% of the student population.
Given your faith, CDs and high-yield savings accounts are ruled out. A letter writer recently asked me where he should start looking to invest his $50,000 life savings, and I pointed him in the “make interest off your cash” direction, particularly given the recent rise in interest rates. That won’t work for you, but the good news is that you do have many options.
There are investment vehicles for you. In fact, the Accounting and Auditing Organization for Islamic Financial Institutions sets guidelines for investing in accordance with the Sharia religious code, including rules around companies that derive a percentage of their profits from tobacco and alcohol products. And, yes, it also regards interest as unjust and exploitative.
Saturna Capital has mutual funds that follow Islamic principles. The Amana Income Fund AMANX, which focuses on current income and the preservation of capital, has had an average annual five-year return of 8.8% for investor shares, slightly lower than the 9.9% average return for the S&P 500
SPX
over the same period with dividends reinvested. I suggest this as a guidepost rather than a recommendation.
Similarly, the Knights of Columbus assets are managed by Knights of Columbus Asset Advisors in accordance with Catholic moral principles, which are distilled to six main tenets: “protecting human life, promoting human dignity, reducing arms production, pursuing economic justice, protecting the environment [and] encouraging corporate responsibility.”
Related: How do I know if my ESG investments are doing any good?
Of course, investing along religious principles — similar to ESG investment, which takes environmental, social, and corporate-governance factors into account when deciding what to do with your money — is fraught with complications, contradictions and problems with transparency. Regulators are cracking down on vehicles that “greenwash” their ESG credentials.
A major report by the Organization for Economic Cooperation and Development, an intergovernmental organization with 38 member nations, found that ESG ratings vary strongly depending on the provider, as they commonly use different measures, indicators, metrics, data and qualitative judgments to make decisions about funds and companies.
“Moreover, returns have shown mixed results over the past decade, raising questions as to the true extent to which ESG drives performance,” the OECD said. “This lack of comparability of ESG metrics, ratings, and investing approaches makes it difficult for investors to draw the line between managing material ESG risks within their investment mandates.”
You have many funds to choose from. If you’re Catholic, you could look into the Global X S&P 500 Catholic Values ETF
CATH
; the LKCM Aquinas Catholic Equity Fund AQEIX; or Ave Maria, which offers mutual funds for growth AVEGX, value AVEMX and bonds AVEFX AVEFX. You can read more here. Investing based on religious, moral or ethical principles doesn’t guarantee a satisfactory return.
It’s not too late to start investing at 53. With the advice of a financial adviser, your risk profile may need regular adjusting, based on your age and tolerance. But you may work into your 70s and may live into your 80s or 90s, and you will want to find myriad ways to build your wealth throughout your retirement. Cash-hoarding typically gets outdone by inflation.
You may find a job with a 401(k) and an employer match, meaning your employer will contribute an additional sum toward your retirement based on the amount you are contributing every month. You may also consider an IRA. Both account types have “catch-up” contributions for people who are over 50. Annual IRA contribution limits for 2023 are $6,500 for people under 50, but $7,500 for those 50 and older.
You can also use pretax dollars for health savings accounts, which are used to offset the burden of high-deductible healthcare plans. With the latter, you pay a lower premium, but you will be saddled with higher out-of-pocket expenses for medical services should you require them. You can contribute up to $4,150 to an HSA for 2024, up from $3,850 this year.
As for right now? Pay off your credit cards. Don’t let high-interest debt trap you. Warren Buffett said one of the best investments he ever made was buying his Omaha, Neb., home for $31,500 in 1958. It’s worth $1.4 million today. He has said he may have put that money to better use if he had rented instead, but owning your own home will solidify your financial position in retirement.
Investing $1,000 a month may be ambitious. But thinking in the medium to long term — and knowing this is a marathon rather than a sprint, even at 53 — is half the battle. With compounding, or making money off your principal and the increase in value of your initial investment, you could have more than $120,000 in 10 years, and over $600,000 in 30 years.
Bravo on this new chapter. Take it one day, one week and one month at a time, and enjoy your life.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
‘I’m tired of feeling like I am in hell’: My boss tears into me almost daily. He says I’m worthless. What can I do?
I earn $210,000 and I’m 59. My wife and I want to move to Hawaii. Is it too late to get a mortgage?
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My colleagues JP Aubry and Yimeng Yin just released an update on state and local pension plans. Their analysis compared 2023 to 2019 – the year before all the craziness began. Think of the unusual events that have occurred in the last few years: 1) the onset of COVID; 2) the subsequent COVID stimulus; 3) declining interest rates; 4) rising inflation; and then 5) rising interest rates.
Despite the volatility of asset values over this period, the 2023 funded status of state and local pension plans is about 78%, which is 5 percentage points higher than in 2019 (see Figure 1). Of course, the numbers for 2023 are estimates based on plan-by-plan projections, but these projections have an excellent track record.
While the aggregate funded ratio provides a useful measure of the public pension landscape at large, it also can obscure variations in funding at the plan level. Figure 2 separates the plans into thirds based on their current actuarial funded status. The average 2023 funded ratio for each group was 57.6% for the bottom third, 79.5% for the middle third, and 91.1% for the top third.
The major reason for the improvement in plans’ funded status is that, despite the turbulence in the economy, total annualized returns, which include interest and dividends, have risen noticeably for almost all major asset class indexes over the 2019-2023 period (see Figure 3). The exception over this short and volatile period is fixed-income assets, which have declined in value.
The effect of fixed income’s decline on overall portfolio performance has been modest because, since 2019, fixed income has averaged only about 20% of pension fund assets (see Figure 4).
So, things are looking a little better for state and local pensions. Yes, the funded ratios are biased upward because plans use the assumed return on their portfolios – roughly 7% – to discount promised benefits. That said, trends are important, and the trend is good.
Moreover, annual state and local benefit payments as a share of the economy are approaching their peak for two reasons. First, most pension plans do not fully index retiree benefits for inflation, which lowers the real value of benefits over time. Second, the benefit reductions for new hires – introduced in the wake of the Great Recession – have started to have an impact.
With liabilities in check and solid asset performance, maybe we can all relax a bit about the future of the state and local pension system.
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If there were no tax cheats in America, there would be no Social Security crisis. Benefits could be paid, and payroll taxes kept the same, for the next 75 years.
That’s not me talking. That’s math. It comes from the number crunchers at the Social Security Administration and the Internal Revenue Service.
And it explains why those of us who support Social Security should be pounding the table in outrage over one clause of the Biden-McCarthy debt ceiling deal: The part where the president has to retreat from his crackdown on tax cheats just so McCarthy and the House Republicans would agree to prevent America defaulting on its debts.
It’s just two years since the administration got into law an extra $80 billion for the IRS to beef up enforcement. That was supposed to include hiring an estimated 87,000 IRS agents.
OK, so nobody likes paying taxes and nobody likes the IRS. Cue the inevitable critiques of an IRS tax “army,” and so on. But this isn’t about whether taxes should be higher or lower. It’s about whether everyone should pay the taxes that they owe.
After all, if we’re going to cut taxes, shouldn’t they apply to those of us who obey the laws as well as those who don’t? Or do we just support the “Tax Cuts for Criminals” Act?
Why would any voter rally around a platform of “I stand with tax cheats?”
The Congressional Budget Office calculated that the extra funding for the IRS would have reduced the deficit, because it would more than pay for itself. But it’s now been cut by an estimated $21 billion out of $80 billion.
If this seems abstract, consider the context and how it affects you and your retirement — and the retirements of everyone you know.
Social Security is now running at an $80 billion annual deficit. That’s the amount benefits are expected to exceed payroll taxes this year. (So say the Social Security Administration’s trustees.)
Next year, that deficit is expected to top $150 billion. By 2026, we’re looking at $200 billion and rising. The trust fund will run out of cash by 2034, and without extra payroll taxes will have to slash benefits by a fifth or more.
Over the next 75 years, says the Congressional Budget Office, the entire funding gap for the program will average about 1.7% of gross domestic product per year.
Meanwhile, how much are tax cheats stealing from the rest of us? A multiple of that.
According to the most recent estimates from the IRS, tax cheats steal about $470 billion a year. And that figure is four years out of date, relating to 2019. That’s the figure after enforcement measures.
Oh, and the Treasury Inspector General for Tax Administration says that’s a lowball number.
But it still worked out at around 12% of all the taxes people were supposed to pay (including payroll taxes). And around 2.3% of GDP.
Over the next 10 years, based on similar ratios to GDP, that would come to another $3.3 billion.
Sure, Social Security’s trust fund is theoretically separate from the rest of Uncle Sam’s finances. But that’s an accounting issue: A distinction without a difference.
Social Security is America’s retirement plan. Few could retire in dignity without it. Yet it is facing a fiscal crisis. By 2034, without changes, the program will be forced to cut benefits — drastically.
Some people want to cut benefits. Others want to raise the retirement age, which also means cutting benefits. Others want to raise taxes on benefits — which also means cutting benefits. Others want to hike payroll taxes, either on all of us or (initially) only on very high earners.
At last — just 40 or so years out of date — some are starting to talk about investing some of the trust fund like nearly every other pension plan in the world, in high-returning stocks instead of just low-returning Treasury bonds.
(It is hard for me to believe that it’s now almost 16 years since I first wrote about this ridiculously obvious fix And, yes, I’ve been boring readers on the subject ever since, including here and most recently here, and, no, I have no plans to stop.)
But if investing some of the trust fund in stocks is a no-brainer, so, too, is insisting everyone obey the law and pay the taxes they actually owe each year. I mean, shouldn’t we do that before we think about raising taxes even further on those who abide by the law?
How could anyone object? Any party that believes in law and order would support enforcing, er, law and order on tax evasion. And any party of fiscal conservatism would support measures, like tax enforcement, to narrow the deficit.
And, actually, any party that truly supported lower taxes for all would be tough on tax evasion: It is precisely this $500 billion in evasion by a small, scofflaw minority that forces the rest of us to pay more. We have, quite literally, a tax on obeying the law.
One of the many arguments in favor of taxing assets or wealth, instead of just income, is that enforcement would be easier and evasion much harder.
Washington, D.C., seems to be a place where people come up with complex proposals just so they can avoid the simple, fair ones.
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By Dominic Chopping
Norway’s sovereign wealth fund had a 1.49% stake in Credit Suisse Group AG at the end of 2022 and a 3.31% stake in UBS Group AG, holdings that remain “approximately unchanged,” it said Monday.
UBS yesterday agreed to take over Swiss rival Credit Suisse for more than $3 billion as regulators pushed for the deal in an effort to calm declining confidence in the global banking system.
Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares held, but holders of around $17.3 billion of additional tier 1 bonds, or AT1s, will receive nothing.
Norges Bank Investment Management, the arm of Norway’s central bank that manages the sovereign-wealth fund, commonly known as the oil fund, said that it doesn’t hold any Credit Suisse AT1 bonds.
Write to Dominic Chopping at dominic.chopping@wsj.com
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The waiting time for National Pension System (NPS) subscribers in fulfilling their ‘partial withdrawal’ requests just got reduced with the pension regulator PFRDA bringing this activity under the T+2 timeline, from the earlier T+4 settlement.
Put simply, the pension regulator has reduced the timeline for processing partial withdrawal requests to T+2 across all Central Record Keeping Agencies (CRAs).
“We have added more services in the bouquet under T+2 timelines.This is a big reform for the benefit of NPS subscribers as they need not now wait for four days or even the fifth day to get the funds from partial withdrawal into their bank account,” sources in PFRDA said.
It maybe recalled that PFRDA had in September 2022 reduced the timeline for processing withdrawal requests of subscribers at the time of exit from T+4 working/settlement days (T being the day of authorisation of withdrawal request by Nodal officer/PoP/subscriber) to T+2 days.
With the latest move on partial-withdrawal, PFRDA has now crunched the turnaround time for all kind of withdrawals.
As part of Azadi Ka Amrit Mahotsav and to commemorate 75 years of India’s independence, the intermediaries of PFRDA viz Central Record Keeping Agencies (CRAs), Pension Fund and Custodians have improved the system interface and enhanced their IT capabilities to reduce the timelines of various transactions under NPS for providing better subscriber experience to fulfil their evolving needs.
PFRDA has also now said that reduced timelines will be introduced in a phased manner in the future for many more activities in the interest of Subscribers.
Meanwhile, India’s pension assets (NPS and APY) continue to show frenetic growth and the assets under management touched about ₹8.75-lakh crore till February 11 this year. The AUM has been growing at 28-30 per cent despite headwinds such as rising inflation and increase in interest rates in the country.
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People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.
For 401(k)s, that’s an almost 10% increase from 2022’s contribution limit of $20,500. For IRAs, it’s a more than 8% rise from 2022’s limit of $6,000.
As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked to approximately 7%.
When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.
“Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” Rita Assaf, vice president of retirement products at Fidelity Investments, said after the IRS released the 2023 contribution limits.
Seven in 10 people are “very concerned” how inflating costs will impact their readiness for retirement according to a Fidelity study, Assaf noted. “Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.
The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.
Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.
Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through a workplace retirement plan and yearly income. Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.
For 2023, a single taxpayer covered by a workplace retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during 2022.
For a married couple filing jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” the IRS said.
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.
There are also changes coming for the Roth IRA, which people fund with after-tax money and then can tap tax-free later.
Read also: Here’s when you should choose a Roth IRA over a traditional account
The Roth IRA contribution limits also climb to $6,500. Retirement savers putting money in their 401(k) can’t also put pre-tax money in a traditional IRA, but they can contribute to a Roth account.
Still, the eligibility to contribute to Roth IRA accounts is pegged to income, subject to phase-out ranges.
In 2023, the income phase-out range on Roth IRA contributions climbs to between $138,000 – $153,000 for individuals and people filing as head of household. (That’s up from a range between $129,000 and $144,000, the IRS noted.)
With a married couple filing jointly, next year’s phase-out range goes to $218,00 – $228,000. That’s a step up from this year’s $204,000 – $214,000 range.
The income limit surrounding the saver’s credit, which is geared toward low- and moderate-income households, is also getting a lift. The credit lets taxpayers claim 10%, 20% or one-half of contributions to eligible retirement plans, including a 401(k) or an IRA. The credit’s income limits are climbing, the IRS said.
The 2023 income limit will be $73,000 for married couples filing jointly, $54,750 for heads of household and $36,500 for individuals and married individuals filing separately, according to the IRS.
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London
CNN Business
—
Pension funds are designed to be dull. Their singular goal — earning enough money to make payouts to retirees — favors cool heads over brash risk takers.
But as markets in the United Kingdom went haywire last week, hundreds of British pension fund managers found themselves at the center of a crisis that forced the Bank of England to step in to restore stability and avert a broader financial meltdown.
All it took was one big shock. Following finance minister Kwasi Kwarteng’s announcement on Friday, Sept. 23 of plans to ramp up borrowing to pay for tax cuts, investors dumped the pound and UK government bonds, sending yields on some of that debt soaring at the fastest rate on record.
The scale of the tumult put enormous pressure on many pension funds by upending an investing strategy that involves the use of derivatives to hedge their bets.
As the price of government bonds crashed, the funds were asked to pony up billions of pounds in collateral. In a scramble for cash, investment managers were forced to sell whatever they could — including, in some cases, more government bonds. That sent yields even higher, sparking another wave of collateral calls.
“It started to feed itself,” said Ben Gold, head of investment at XPS Pensions Group, a UK pensions consultancy. “Everyone was looking to sell and there was no buyer.”
The Bank of England went into crisis mode. After working through the night of Tuesday, Sept. 27, it stepped into the market the next day with a pledge to buy up to £65 billion ($73 billion) in bonds if needed. That stopped the bleeding and averted what the central bank later told lawmakers was its worst fear: a “self-reinforcing spiral” and “widespread financial instability.”
In a letter to the head of the UK Parliament’s Treasury Committee this week, the Bank of England said that if it hadn’t interceded, a number of funds would have defaulted, amplifying the strain on the financial system. It said its intervention was essential to “restore core market functioning.”
Pension funds are now racing to raise money to refill their coffers. Yet there are questions about whether they can find their footing before the Bank of England’s emergency bond-buying is due to end on Oct. 14. And for a wider range of investors, the near-miss is a wake-up call.
For the first time in decades, interest rates are rising quickly around the world. In that climate, markets are prone to accidents.
“What the previous two weeks have told you is there can be a lot more volatility in markets,” said Barry Kenneth, chief investment officer at the Pension Protection Fund, which manages pensions for employees of UK companies that become insolvent. “It’s easy to invest when everything’s going up. It’s a lot more difficult to invest when you’re trying to catch a falling knife, or you’ve got to readjust to a new environment.”
The first signs of trouble appeared among fund managers who focus on so-called “liability-driven investment,” or LDI, for pensions. Gold said he started to receive messages from worried clients over the weekend of Sept. 24-25.
LDI is built on a straightforward premise: Pensions need enough money to pay what they owe retirees well into the future. To plan for payouts in 30 or 50 years, they buy long-dated bonds, while purchasing derivatives to hedge these bets. In the process, they have to put up collateral. If bond yields rise sharply, they are asked to put up even more collateral in what’s known as a “margin call.” This obscure corner of the market has grown rapidly in recent years, reaching a valuation of more £1 trillion ($1.1 trillion), according to the Bank of England.
When bond yields rise slowly over time, it’s not a problem for pensions deploying LDI strategies, and actually helps their finances. But if bond yields shoot up very quickly, it’s a recipe for trouble. According to the Bank of England, the move in bond yields before it intervened was “unprecedented.” The four-day move in 30-year UK government bonds was more than twice what was seen during the highest-stress period of the pandemic.
“The sharpness and the viciousness of the move is what really caught people out,” Kenneth said.
The margin calls came in — and kept coming. The Pension Protection Fund said it faced a £1.6 billion call for cash. It was able to pay without dumping assets, but others were caught off guard, and were forced into a fire sale of government bonds, corporate debt and stocks to raise money. Gold estimated that at least half of the 400 pension programs that XPS advises faced collateral calls, and that across the industry, funds are now looking to fill a hole of between £100 billion and £150 billion.
“When you push such large moves through the financial system, it makes sense that something would break,” said Rohan Khanna, a strategist at UBS.
When market dysfunction sparks a chain reaction, it’s not just scary for investors. The Bank of England made clear in its letter that the bond market rout “may have led to an excessive and sudden tightening of financing conditions for the real economy” as borrowing costs skyrocketed. For many businesses and mortgage holders, they already have.
So far, the Bank of England has only bought £3.8 billion in bonds, far less than it could have purchased. Still, the effort has sent a strong signal. Yields on longer-term bonds have dropped sharply, giving pension funds time to recoup — though they’ve recently started to rise again.
“What the Bank of England has done is bought time for some of my peers out there,” Kenneth said.
Still, Kenneth is concerned that if the program ends next week as scheduled, the task won’t be complete given the complexity of many pension funds. Daniela Russell, head of UK rates strategy at HSBC, warned in a recent note to clients that there’s a risk of a “cliff-edge,” especially since the Bank of England is moving ahead with previous plans to start selling bonds it bought during the pandemic at the end of the month.
“It might be hoped that the precedent of BoE intervention continues to provide a backstop beyond this date, but this may not be sufficient to prevent a renewed vigorous sell-off in long-dated gilts,” she wrote.
As central banks jack up interest rates at the fastest clip in decades, investors are nervous about the implications for their portfolios and for the economy. They’re holding more cash, which makes it harder to execute trades and can exacerbate jarring price moves.
That makes a surprise event more likely to cause massive disruption, and the specter of the next shocker looms. Will it be a rough batch of economic data? Trouble at a global bank? Another political misstep in the United Kingdom?
Gold said the pension industry as a whole is better prepared now, though he concedes it would be “naive” to think there couldn’t be another bout of instability.
“You would need to see yields rise more quickly than we saw this time,” he said, noting the larger buffers funds are now amassing. “It would require something of absolutely historic proportions for that not to be enough, but you never know.”
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