In his final speech as chairman of the National Association of Pension Funds (NAPF), Ian Tomlinson yesterday told the organisation's annual conference in Manchester that around 1000 UK pension funds were at severe risk of a double hit from "the torture of quantitative easing".

The NAPF claims that the latest round of quantitative easing (QE) could increase the deficits of UK pension funds by £45bn. Tomlinson says that many final salary schemes would be forced to close as a result.

The NAPF has been in discussion with the Pensions Regulator to consider a range of options to give pension funds "more breathing space". Extending recovery periods, smoothing valuation results and postponing valuation dates have been touted as possible measures.

The regulator valued the 1000 funds that Tomlinson feels are at severe risk three years ago (under its triennial valuation system) when the first round of QE had just been announced. Funds now facing another valuation from the regulator are now likely to find their funding positions have become considerably weaker because of a distortion in inflation and suppression of long-term interest rates caused by the Bank of England's latest fiscal injection.

Tomlinson spoke of a "valuations lottery" that may lead to some unlucky firms being forced to pump more money into their schemes.

"QE is a key ingredient in a recipe that is destroying the value of the UK's retirement savings. It is a torture for pension funds because it artificially suppresses long term interest rates," said the chairman.

Tomlinson added: "We must avoid a valuation lottery in which pension funds ensnared by QE end up having to pay more into recovery programmes than their competitors." He is to make way for his successor Mark Hyde Harrison this Friday.

Tomlinson's warning is the latest in a long line of criticism from the pension industry directed towards the Bank of England. After stock market drops wiped out many of the careful gains that funds had clawed back since the onset of the financial crisis, the central bank's move has made 2011 a disappointing year for pension fund trustees.

First published 20 October 2011

azeevalkink@wilmington.co.uk