NAPF calls for crisis meeting with TPR after QE rise

Pension funds are calling for an urgent meeting with The Pensions Regulator to discuss ways of protecting UK schemes from the negative effects of quantitative easing, after the Bank today expanded the programme by £75bn.

The National Association of Pension Funds said a strong and growing economy was essential for the long-term sustainability of UK pensions - noting quantitative easing could be a price worth paying, but only if it was successful in delivering the growth that businesses and pension funds need.

But it warned QE has adverse consequences for pension funds in the short-term, and urged the regulator to take this into account.

NAPF chief executive Joanne Segars (pictured) said: "QE makes it more expensive for employers to provide pensions, and will weaken the funding of schemes as their deficits increase. All this will put additional pressure on employers at a time when they are facing a bleak economic situation."

She added: "It is crucial that the Pensions Regulator takes into account the negative impact of quantitative easing on pension schemes.

"Lower interest rates will increase pension deficits, making them look artificially large. This is even more worrying as the Bank of England is intending to extend its gilt purchases into longer term maturities, which will have a larger impact on pension fund deficits."

Segars said the NAPF would write to the regulator to request an urgent meeting to discuss the implications of QE on pension funds and what can be done to protect them.

Actuaries have warned a second round of QE could add billions to scheme liabilities as gilt yields fall.

Hymans Robertson head of financial risk management Russell Chapman said: "While the full impact of this decision will take time to emerge, a further quarter-point (0.25%) fall in yields would add another £25bn to FTSE350 pension liabilities.

"For many pension schemes, this will see nearly all of the improvement of the previous two years wiped out, and they may be back to where they were in 2009."

Pension Corporation partner Mark Gull agreed schemes would be hit but noted the Bank's stimulus would primarily be used to buy gilts with maturities from 3 years to 25 years - a move that could mitigate the effect on schemes.

He said avoiding buying very long dated gilts and index linked gilts will lessen the impact on pension fund liabilities, but warned as gilt yield are driven lower pension fund deficits will still rise.