I know it’s got something to do with government bonds but I don’t understand the mechanics.
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Pension funds want to provide fairly low risk investments, but also reasonable returns (profits). They are the major buyers of gilts (UK government bonds) because these are low risk. But the returns aren’t good enough, so they also buy other financial products. Naturally these products are higher risk, so the pension funds want to hedge (insure against) that risk.
They do this by what is called leveraged hedging: effectively they borrow money to buy gilts. This exposes pension funds significantly to gilt values. If a fund borrows money to buy a gilt, then when the loan falls due the gilt is worth less, it cannot cover the debt by selling the gilt.
This led to a runaway effect of pension funds selling gilts to reduce their exposure to falling prices, further reducing prices.
The issue is not so much of the pension funds running out of money overall, but of them running out of liquidity. If a fund doesn’t have enough cash to pay off the loans that are falling due (or equivalent financial instruments) then they have yo sell their gilts and that precipitates the crash.
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