LONDON, Feb 1 Reuters The Bank of England will set out a tougher framework next month to regulate liabilitydriven investment LDI funds, which could put them out of reach for some pension schemes, BoE executive director Sarah Breeden said on Wednesday.

LDI funds have been used by pension schemes to ensure they can meet payouts to pensioners in future years.

But turmoil in the British government bond market in September triggered by former Prime Minister Liz Truss39;s radical tax cut plans caused problems for these funds.

Yields on the government bonds or gilts held by LDI funds rocketed, and the funds struggled to meet urgent collateral calls to cover the fall in bond prices. The BoE had to intervene to buy gilts to help bring yields down.

We will set out resilience outcomes that we want to see and if there are some schemes, perhaps because they are so small they are unable to meet those standards, it39;s a reasonable question whether an LDI strategy is appropriate for them, Breeden said.

I don39;t think that it needs to be banned outright.

Breeden said LDI funds have been told to hold bigger liquidity buffers as an interim measure until steady state or permanent requirements will be set out in a statement from the BoE39;s Financial Policy Committee in the second half of March.

The rules will set out principles on leverage and liquidity, which will require an LDI fund to be able to replenish liquidity quickly and smoothly, and that risks from using LDI funds are…