NAPF calls for debate on effect of quantitative easing on pensions
UK - The National Association of Pension Funds (NAPF) has called for a debate on the effectiveness of quantitative easing as the Bank of England said it would extend the asset purchase programme by a further £50bn (€62bn), bringing the total level of QE to £375bn.
The UK's pension association stressed that it was of course in favour of a strong domestic economy, but questioned whether the ever-growing stimulus package was the correct way to achieve sound financial health.
The renewed expansion of the programme was widely expected after a previous £50bn package was narrowly voted down at last month's monetary policy committee, with commentators expecting an impact equal to a £40bn increase in liabilities.
The NAPF's chief executive Joanne Segars pointed to the impact of QE, resulting in rising deficits and falling yields.
"Pension funds are deeper in the red than ever, and this extra dose of QE is only going to make things tougher," she added.
"Businesses will be forced to divert more money from jobs and investment into filling black holes in their pension funds."
Segars stressed that its members were not opposed to QE, as they realised the value of a stronger domestic economy, but said the central bank could have examined other options over a gilt purchase - such as buying corporate bonds instead.
"We are now over three years into this project, and we would like to see more evidence that it is working," the chief executive said.
"There needs to be more of a debate about its benefits, and pensioners and pension funds should not be overlooked."
Consultancy Hymans Robertson meanwhile urged sponsoring companies to reassess their funding proposals and investment strategies in light of the "historically low" yields.
Clive Fortes, partner and head of corporate consulting at Hymans, said: "By recognising their true position, working closely with trustees and having a clear plan in place, companies will be in a much better position to deal with the ongoing economic malaise."
Mark Gull, co-head of asset liability management at the Pension Corporation estimated that sponsors would need an additional £100bn over the next three years to addressincreasing deficits.
He added: "Pension funds have long-dated liabilities and should be encouraged to go into long-dated investments. Instead of pension funds being collateral damage in the race to shore up the economy, policy should utilise them in a growth oriented solution."
Gull estimated that pension liabilities would increase by £40bn as a resuly of the latest stimulus.
Peter Hensman of Newton Investment Management warned that the Bank of England could well continue with further QE, despite the asset purchase facility set to own £375bn of the £1.2trn UK gilt market at the end of the year.
Meanwhile, Saga director general Ros Altman questioned the timing of the new tranche of stimulus, saying it was "especially difficult" to understand the increased monetary easing in the wake of the LIBOR scandal.
"QE may well have shored up bank balance sheets (as well as helping some borrowers), but this does not boost the economy when banks are failing to lend on reasonable terms," she said.
Altman said QE might have in fact damaged growth, and echoed concerns raised by the NAPF that it was damaging retirees on the verge of buying an annuity.