Call for evidence: pension fund clearing exemption

The HM Treasury has launched a call for evidence on the clearing exemption that is currently in place for pension funds operating in the UK. The call for evidence thereby outlines the history of this exemption which was recently extended up to June 18, 2025 and the rationale behind the exemption.
Specifically, currently the exemption applies to contracts that are used to hedge risks such as inflation or interest rate movements which directly have an impact on the solvency of pension funds and thus their ability to meet future payment obligations to scheme members. The exemption is primarily based on the fact that pension funds rarely hold cash reserves that would be needed to service margin requirements of central counterparties (CCP) if central clearing via a CCP would be required. Instead, most pension funds currently hold UK gilts, which – so to speak – serve as the hedging alternative to the central clearing requirement.
In view of an announced review of this clearing exemption, the Treasury now seeks evidence on the following issues, among others:
– the hedging activities of pension funds;
– the types of derivatives used by pension funds to hedge the above noted risks;
– the proportion of voluntarily cleared contracts, if applicable;
– the costs and benefits of uncleared contracts;
– the incentives of CCPs to clear contracts of pension funds;
– the effectiveness of hedging via the use of UK gilts versus the clearing requirement;
– the impacts of the clearing exemption on the Liability-driven investment (LDI) crisis in 2022 (or vice versa: could the crisis have been prevented in case of mandatory central clearing);
– the ability of pension funds to service initial and variation margin requirements; or
– the immediate impact of a central clearing requirement on UK pension funds.
—
Comments on the call for evidence may be submitted to the HM Treasury via e-mail: pensionfundexemption@hmtreasury.gov.uk or post to:
Pension fund clearing exemption
Financial Services
HM Treasury
1 Horse Guards Road
SW1A 2HQ