The news we are hearing every day about market fluctuations and a steep fall in government bond prices is obviously concerning, however, individuals should be reassured their pensions are very strongly protected and perhaps the news is not as bad as people have been led to believe.
What has happened?
Government bonds, known as gilts, are normally safe investments and are prevalently used by British pension funds. This is particularly the case for defined benefit or final salary schemes as they offer more protection against falls in interest rates and increases to long term inflation expectations. The government's mini budget at the end of September hit confidence in these gilts which led to a sell-off and investors started demanding a higher rate of interest to buy them. The Bank of England (BoE) stepped in to temporarily buy more gilts to stabilise the markets.
