Yes I think the BOE should have leaned very heavily on the Pension Regulator and anyway the Pension Regulator should have themselves stopped this.
Firms with Defined Benefit Schemes wanted the swaps not to serve those on the pension schemes but to make their owe company accounts look rosier to the firms' shareholders and creditors. The accounting rules mean that company accounts need to have the Defined Benefit Scheme as a liability valued as though it were a series of gilts able to fund those future pensions. So when interest rates are very low, a tiny further fall in gilt yields results in a huge increase in that notional present value of the pension fund liability (even though it has no material effect on whether the pensions can be paid by a sensibly managed fund).
If the sponsors wanted their accounts to be hedged against that, that is something they should be paying for, not something the pensioners on their scheme should be exposed to. They could for instance have hedged using options instead of swaps. Then there would have been no risk of calamity and merely an ongoing cost drag to the sponsoring firm.
Stepping back, the most sensible (IMO) way to avoid all the mess would be to change the accounting rules such that defined benefit pension liabilities on company accounts instead got a notional present value based on a sensible conservative view of what a well managed scheme yields. So say 3.5%/year over inflation.
Firms with Defined Benefit Schemes wanted the swaps not to serve those on the pension schemes but to make their owe company accounts look rosier to the firms' shareholders and creditors. The accounting rules mean that company accounts need to have the Defined Benefit Scheme as a liability valued as though it were a series of gilts able to fund those future pensions. So when interest rates are very low, a tiny further fall in gilt yields results in a huge increase in that notional present value of the pension fund liability (even though it has no material effect on whether the pensions can be paid by a sensibly managed fund).
If the sponsors wanted their accounts to be hedged against that, that is something they should be paying for, not something the pensioners on their scheme should be exposed to. They could for instance have hedged using options instead of swaps. Then there would have been no risk of calamity and merely an ongoing cost drag to the sponsoring firm.
Stepping back, the most sensible (IMO) way to avoid all the mess would be to change the accounting rules such that defined benefit pension liabilities on company accounts instead got a notional present value based on a sensible conservative view of what a well managed scheme yields. So say 3.5%/year over inflation.