The Bank of England’s (BoE) decision to inject another £50bn into the UK economy today has provoked a great deal of concern among pension professionals.

The total amount of money that has now been pumped into the economy in order to try and stimulate economic growth is £325bn since the government started its quantitative easing programme. However, this latest action from the Bank of England carries with it some knock-on effects.

National Association of Pension Funds (NAPF) chief executive Joanne Segars said: “Our priority has to be a stronger economy, so we understand the Bank’s case for more medicine. But this short-term stimulus is leaving pensioners and pension funds in long-term pain.

“People who are retiring now are finding that annuity rates have been squashed by QE, and that they will get a smaller pension than they expected. Retirees who get locked into a weak annuity will find that the Bank’s money printing leaves them out of pocket for the rest of their lives.”

Segars also underlined that the last round of QE increased pension deficits by around £45bn and the latest round will only worsen this. She stated that The Pensions Regulator (TPR) will need to work with pension funds on the best ways to address the repercussions of QE.

Save Our Savers spokesman Simon Rose also highlighted his concerns over annuity rates. “Twenty years ago a pension pot of £100,000 would have bought an annuity providing income of £15,640 for life. Now it provides only £5,800 and that is set to go lower still. With record numbers retiring, QE will have an appalling impact.”

Hymans Robertson partner Clive Fortes offered a view covering both sides of the argument surrounding QE3. “While QE might have beneficial impacts in terms of reducing the cost of government borrowing and boosting money supply in the economy, the flip side of this is that yields available from UK gilts have plummeted to levels not seen since the late 1800s. For pension schemes in search of stable yields, that is not good news.”

Saga director general Dr Ros Altmann launched a scathing attack stating that the Bank of England had “failed to see sense after all” and that the latest purchase of gilts was not the “right medicine” for the economy.

“The jury is still very much out on whether QE is actually providing an economic stimulus. Despite the billions of pounds of new money, consumer lending fell last year, growth weakened and inflation sapped consumer confidence. At current levels, no further stimulus will be achieved by continuing with QE in the same way.”

Altmann also mentioned that the BoE was frightened that if it didn’t implement the latest round of QE and keep on buying gilts, yields on government bonds would rise and thus result in the fiscal deficit being harder to finance.

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