Pension funds react to £50bn of fresh QE

05 July 2012

The National Association of Pension Funds (NAPF) commented on the announcement of a further £50bn of quantitative easing (QE) today (Thurs).

NAPF Chief Executive Joanne Segars said:

“The economists might argue about whether QE works, but there is no doubt that it short-changes businesses running final salary pensions, and people who are about to retire.

“QE worsens the yield on gilts, which increases the deficits of final salary pension funds and means people get a worse rate on their annuity. Those who are retiring could be locked into a weaker pension for the rest of their days.

“Pension funds are deeper in the red than ever, and this extra dose of QE is only going to make things tougher. Businesses will be forced to divert more money from jobs and investment into filling black holes in their pension funds. Our fear is that many will choose to close these pensions altogether, further weakening the UK’s ability to save for its old age.

“The Bank’s own research shows that QE is harmful to the majority of final salary pension schemes, particularly in the short-term. It looks like the Bank is using this latest bout of QE to keep hitting the ‘buy gilts’ button, instead of exploring other options. It could have looked at buying other assets, such as high rated corporate bonds, which could stimulate credit easing and pump liquidity more directly into the hands of banks and businesses.

“Pension funds want to see a stronger economy, so they are not against QE. But we are now over three years into this project, and we would like to see more evidence that it is working. There needs to be more of a debate about its benefits, and pensioners and pension funds should not be overlooked. The Pensions Regulator must be more accommodating when it comes to evaluating pension deficits.”

 

Notes to editors:

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

Contacts:

Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, paul.platt@napf.co.uk

Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, christian.zarro@napf.co.uk