UK - A £50bn (€60bn) extension to the Bank of England's quantitative easing (QE3) programme has been greeted with resignation by the pensions industry, with the National Association of Pension Funds (NAPF) saying it understood the need for "more medicine" despite the effect it would have on pension funds' deficits.
The UK's central bank today announced that, in light of the "weak" immediate outlook for growth, it would further expand its asset purchase facility - with the third round of quantitative easing bringing the total to £325bn.
In a statement, it said the UK was "more likely than not" to see its inflation target of 2% undercut over the medium term, with Aon Hewitt noting that QE3 came as part of a "wider global suppression of bond yields" by the US Federal Reserve and the European Central Bank.
The consultancy's head of global asset allocation Colin Robertson added: "Given the interaction of bond markets around the world, it is therefore impossible to isolate the impact of the Bank of England's actions. But undoubtedly anticipation of this latest package of QE has acted to keep gilt yields at extremely low levels."
NAPF chief executive Joanne Segars recognised the need for further measures by the bank, but she said: "This short-term stimulus is leaving pensioners and pension funds in long-term pain."
She noted the impact QE3 would have on already low annuity rates and companies with defined benefit schemes.
"For the companies that run final salary pensions, QE is a headache that pushes their pension funds further into the red," she said.
"This means businesses have to put more money into their pension schemes, instead of spending it on jobs and investment. Our fear is that firms struggling with a weak economy will simply choose to close their pension schemes."
Clive Fortes, partner at Hymans Robertson, noted that gilt yields had fallen to levels not seen in 200 years - posing problems for any pension fund hoping for strong yields.
"Having said this, we expect that this third dose of medicine will have considerably less impact than the first or second dose," he said.
"What we do expect, however, is that QE3 will extend the period before we might see gilt yields rising to even the levels seen 12 months ago."
Segars pointed out that the previous £75bn stimulus, announced late last year, had added an estimated £45bn to pension deficits and that QE3 would only add to the overall level of underfunding.
"The Pensions Regulator needs to set out the details of how it is going to help pension funds cope with QE," she said.
The UK regulator has already announced it will publish guidance on how to account for the impact of QE, with details expected in April.