Pension funds are under increasing pressure following the Bank of England's announcement it is cutting the base rate of interest to 0.25%.

UK interest rates have been cut from 0.5% to 0.25%, a record low and the first cut since 2009, along with a raft of additional measures, including quantitative easing.

The Bank of England Governor Mark Carney also signalled that rates could even go lower if the economy worsens.

The Pensions and Lifetime Savings Association (PLSA) said the cut was cause for concern for pension schemes.

PLSA director of external affairs Graham Vidler said: "Pension schemes have battling historically low interest rates for more than eight years and further cuts will put them under even greater pressure."

Vidler said although he recognised the need to protect the economy, strong consideration needs to be given to the negative impact this will have on the 6,000 defined benefit (DB) pension schemes.

"The introduction of further quantitative easing will also put pressure on pension schemes," he added.

deVere Group CEO Nigel Green described the announcement as "a toxic combination" for pensioners and savers.

He said: "By pulling the trigger and cutting interest rates for the first time in seven and a half years today and boosting quantitative easing, the Bank of England has delivered yet another painful bloody nose."

The interest cuts could add a new dimension to the ongoing debate around the sustainability of DB schemes and PLSA has urged the Pensions Regulator to step in.

"Given the current economic conditions we are calling on the Pensions Regulator to use its existing powers to take a proportionate and flexible approach to scheme funding in these uncertain times," said Graham Vidler.

"It should give particular consideration to schemes going through a valuation cycle at the moment."

Patrick Bloomfield, partner at pensions consultancy Hymans Robertson, said schemes should remember the long-term and avoid over-reacting.

"The past month's events highlight the need for schemes to become more resilient to risk, and place much closer attention to assessing the financial ability of their sponsoring company to support the scheme now and in the future," he said.

First published 11.08.2016

Lindsay.sharman@wilmingtonplc.com