Show Hide image

"Money printing" takes a bite out of pensions

Quantitative easing has left companies with a £90bn bill

MPs were told today that the Bank of England’s £375bn policy of quantitative easing had left companies with a £90bn bill to fill pension fund deficits.

Mark Hyde-Harrison’s warning follows the Treasury’s decision to use its QE programme in order to transfer the £35bn built up at the Bank.

The chairman of the National Association of Pension Funds said that inflexible pension regulations would make companies unable to strengthen their balance sheets, as they would have normally spent the funds they’ll need to pay down these deficits.

He also told the members of the House of Commons Treasury Select Committee, who are supervising the Bank’s plan to buy government bonds, that it had resulted in a knock-on effect of limiting growth in the economy.

Quantitative easing has contributed to the push of final-salary schemes into large deficits, by raising the price of gilts, reducing the returns on pension investments, and lowering yields.

Pension funds use government bonds in order to have the necessary funds to payout members in the future, and low interest rates, as well as low gilt yields have, have forced pension schemes to hold more assets to meet those obligations.

Mr Hyde Harrison warned the Select Committee that the schemes would need to find £9bn a year for the next ten years in order to fill the gap, and shared his concerns that the Bank of England would fulfil its promise to buy back the bonds when the time comes to unwind QE, instead of cancelling them.

Pension expert Ros Altman was reported to have accused the Committee to have “overlooked” the consequence of quantitative easing on pensions, and that asset purchase had “raised the cost of annuities”. She added that whilst having benefited the economy in the short term, asset purchases had distorted long-term saving schemes.

The Bank of England claims that its “money printing” programme had prevented a financial fall-out, which would have left pension funds and savers worse off.

Marie le Conte is a freelance journalist.