The Bank of England's (BoE) monetary policy committee today voted to increase the size of its asset purchase programme, also known as quantitative easing (QE), by £50bn to a total of £375bn, a move which the NAPF says "short-changes businesses running final salary pensions".
Chief executive at the National Association of Pension Funds (NAPF), 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."
The trade body points out that QE worsens the yield on gilts, which increases the deficits of final salary pension funds and consequently means people about to retire get a worse rate on their annuity.
"Pension funds are deeper in the red than ever and this extra dose of QE is only going to make things tougher," Segars says. "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 chief exec argues that the Bank's own research shows that QE is harmful to the majority of final salary pension schemes, particularly in the short-term. She says: "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."
Segars says she thinks the Pensions Regulator must be more "accommodating" when it comes to evaluating pension deficits.
The BoE argued this morning that "against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term".
In a statement it said that the committee therefore voted to increase the size of its QE programme to a total of £375bn.
First published 05.07.2012
azeevalkink@wilmington.co.uk
