Liquidity not Solvency

The problem is that the short selling drives the price of the share down. I know that the pension fund receives an income but it does not cover the capital losses sustained.

The pension fund is not allowed under Inland Revenue rules to trade their holdings, for obvious reasons. at every valuation the employees and employers have to keep topping up the fund to keep it solvent. The trouble is that pension funds need liquidity, not solvency, because now we are in the situation where more employees become a pensioners. They need to look at the future cash flows of the funds. How are they going to raise cash to pay, borrow it against the assets.

Also, a large number of companies are now selling their pension funds to avoid future problems.