The Bank of England (BoE) has today issued a paper on the distributional effects of quantitative easing (QE) and has suggested that pension funds and annuity purchasers have not been hurt by the cash injection into the economy.

In the paper, it was detailed that “the main factor behind increased pension deficits and falls in annuity incomes has not been the bank’s asset purchases, but rather the fall in equity prices relative to government bond prices”. The Bank of England stated that because QE has pushed up gilt prices, it must have had a positive effect on the economy.

However the paper has been met by a large amount of condemnation by industry figures. Barnett Waddingham consultant Malcolm McLean said: “It appears disingenuous in the extreme for the bank to deny that QE and its impact on gilt yields is not having an overall adverse effect on annuity rates and pension funding more widely.

“Although there are other factors, notably improving longevity that have contributed to the problem, most experts would agree that QE has been bad news in that respect. Indeed, if the bank were to persist with its policy and annuity rates were to fall much lower we will reach the point, which I fear we are close to now, where annuities simply repay the original capital to those who live to their normal life expectancy – and are, of course, offering substantially less value to those who might not.”

Saga director general Ros Altmann stated that the bank has failed to address the impact of QE on a vital demographic group of the UK economy – in particular the 21 million over 50s who have been negatively impacted.

Altmann added: “The damage is particularly problematic, yet the bank keeps suggesting it is not due to QE. The reality is very different. Buying gilts and artificially driving down gilt yields which underpin both defined benefit and defined contribution pensions is causing significant economic damage, permanently impoverishing pensioners, is pushing up inflation and damaging consumer spending.”

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