UK - The Bank of England failed to consider the impact of quantitative easing (QE) on pension funds when it launched its £200bn (€230bn) stimulus package in 2009, according to the Pension Insurance Corporation (PIC).

Speaking at a roundtable discussion, the PIC's co-head of asset liability management Mark Gull said the country's central bank committed a "sin of omission" and estimated that the targeted buying of gilts between March 2009 and January last year increased scheme deficits by more than £70bn.

Gull said QE was a "good, useful way" of stimulating the economy, but noted his surprise that the Bank of England (BoE) neglected to mention pension funds in its recent quarterly bulletin, which set out to measure the impact of quantitative easing.

"Gilt yields define their liabilities, and the impact on those were not mentioned at all by the Bank of England - it's a sin of omission," he said, adding that the institution's lack of consideration was worrying.

He calculated that scheme liabilities had increased by £74bn even if only taking into account the 100 basis point drop to gilt yields the BoE estimated resulted from QE.

Gull added that, while this estimate assumed no increase in inflation, long-term inflation prospects should theoretically rise as a result of the stimulus.

Jay Shah, co-head of business origination at the company, said: "The impact of QE has been diluted by the opposite impact it has on pension schemes."

Gull said increased deficits meant companies would be forced to commit to higher deficit reduction payments, which in turn would be likely be committed to matching strategies rather than equity portfolios - again lowering gilt yields.

He argued that, if a second round of quantitative easing were initiated, it should focus less on buying up gilts and more on investing in banks' corporate bonds.

This would have the dual advantage of impacting pension schemes liabilities less and potentially encouraging financial institutions to lend more as their yields fell below those of non-financial corporate bonds, he said.
Highlighting policies implemented by other countries, Gill referenced the US Federal Reserve's attempt to reduce the yields on long-term bonds.

"That would be particularly inappropriate for the UK because that's where more pensioners are," he said.

He conceded that it was an approach the BoE was "less likely" to take, as the importance of long-dated bonds on the US housing market was not mirrored in the UK.