Pension funds were facing 'mass defaults' had the Bank of England not launched an emergency £65billion bailout.

The Bank began buying government bonds at an "urgent pace" yesterday to help restore "orderly market conditions".

It warned that if the market volatility continued there would be a "material risk to UK financial stability".

Last night, it emerged that the risk in question was pension funds having to make major firesales of assets at knock-down prices, putting promised pensions in jeopardy.

Economists compared the crisis to the run of withdrawals that led to the collapse of Northern Rock in the financial crisis.

Day of drama

According to Sky News, the Bank's market operatives had begun to detect a "run dynamic" emerging, with a number of pension funds facing mass defaults in the funds they invest in.

That in turn threatened the finances of many major banks, which would have faced severe troubles if those funds had collapsed.

According to Sky's Economics Editor, Ed Conway, numerous funds were heading for collapse as soon as yesterday afternoon. Its dramatic action was designed to head off that outcome.

The intervention has helped stave off the crisis for pension funds, however, there were and are a series of safeguards that would have clicked in before pensioners themselves would have faced any implications.

The move by Governor Andrew Bailey helped restore some calm to markets, and pensions experts said retirement pots were not under threat.

Markets up after bond-buying pledge

The intervention appears to have had a positive impact on international markets this morning.

Hong Kong's benchmark Hang Seng index was 1.3% higher, while Australia's ASX 200 rose by 1.8% and South Korea's Kospi gained 1.4%.

That came after New York's main stock indexes rebounded from a six-day losing streak to end Wednesday's trading day around 2% higher.

In morning Asia trade, the pound was 0.8% lower at $1.08, after earlier making strong gains on the Bank of England's bond-buying announcement.

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