UK – David Norgrove, the chairman of the Pensions Regulator, has rejected the idea that there is a bubble in gilts caused by pension fund demand.

“I make no claim to call this a bubble as some have,” he told a meeting of the Association of Corporate Treasurers last night. There was no need for “emergency action”. He denied the regulator was forcing schemes in to bonds.

His stance puts him at odds with, among others, the Bank of England, which said last month that pension funds could be behind the decline in long-term real interest rates.

“The fall in long-term real rates could also have been driven by the behaviour of pension funds,” the central bank said in its quarterly Inflation Report.

Norgrove told the event that “if it were true it would be significant”. He cited central bank and overseas purchasing – and pointed out that net investment in gilts has been falling. Pension funds had moved on to buying corporate bonds, he said, echoing comments from actuaries at Aon Consulting earlier in the day.

Norgrove agreed with Aon on the growing importance of the derivatives market, with schemes increasingly holding bonds via this route.

And he made the point that low yields - whatever their cause – are an opportunity to borrow.

He told the audience of corporate treasurers that they were “absolutely at the centre of the issue” of pensions. “You look after the money,” he joked.

He said the regulator wants to work with employers and trustees, not against them – although the workload of around 300 enquiries a month and 100 whistleblowers was a “challenge”.

“In the past year we’ve been playing catch-up,” he said, adding that chief executive Tony Hobman and his staff were working “flat out”.

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