The results of a poll published byfiduciary manager SEI reveal that UK pension schemes do not think the Pensions Regulator (TPR) has gone far enough in its efforts to reduce the impact of quantitative easing (QE) for pension schemes.
No less than 80% of those surveyed (trustees, finance directors, and other pension fund executives from 51 different pension funds) felt that TPR should provide more flexibility in the current rules to reduce the impact of QE on pension scheme liabilities.
In April this year, the Pensions Regulator announced that it would provide flexibility in recovery plans where sponsors were struggling to pay, but ruled out any more far-reaching allowances around assumptions or other rules.
The respondents who felt that more flexibility should be introduced were asked what they thought would be the most impactful change. Fifty percent of those surveyed felt that pension scheme liabilities should be based on an average of the last three years' bond yields, 38% felt that the period for meeting funding objectives should be extended, and 12% felt that the pension protection levy should be decreased.
SEI's poll comes after the Bank of England monetary policy committee made the decision to extend QE by a further £50bn in July, taking the overall total to £375bn. This figure is expected to go up in November of this year.
As a result of the most recent round of QE, 10-year gilt yields fell to record lows of 1.4%, representing an increase of approximately £40bn in liabilities.
Charles Marandu, director of European institutional advice at SEI, said: "The results demonstrate that pension scheme trustees remain concerned that QE is distorting market interest rates and pushing up scheme deficits.
"The Pensions Regulator's statement that flexibility exists within recovery plans seems to have given trustees little comfort, as there was no relief for headline scheme deficits. Most trustees polled favoured smoothing the volatility in funding positions by using an average of historical interest rates to determine the funding liabilities, but, as yet, these measures have been resisted by the authorities.
"One possible relief measure could be to allow a degree of extra flexibility in the setting of discount rates which explicitly adjusts for QE without necessarily requiring the scheme investment policy to be re-risked in order to support it."
SEI's Institutional Group acts as a fiduciary manager to approximately 450 retirement, non-profit and healthcare clients in six different countries.
First published 21.08.2012
azeevalkink@wilmington.co.uk
