The negative effect quantitative easing (QE) is having on pension schemes is a “misconception”, according to Royal Bank of Scotland CEO, Robert Waugh.

Speaking at the Pensions and Lifetime Savings Association's Investment Conference today, 8 March 2018, Waugh said that it did have “unintended consequences” but on the whole had not been bad for pension scheme deficits.

The Bank of England is currently pursuing a strategy of slimming down its asset purchase programme and will embark on rising rates, which means pension funds could “in theory” benefit.

Waugh said: “It’s a misconception the QE has been bad for pension funds.

“It did have unintended consequences - a huge reduction in members, a huge increase of transfers out and sponsors have had to contribute more.”

Despite this, Waugh said that there were other fiscal measures which could have had a more adverse effect on pension schemes.

“Disinflation is probably the worst scenario for pension funds. Since the Pension Protection Fund was set up, 1,000 companies out of 6000 have gone into it, how much more would it be if we had a disinflation scenario?”, he added.

When asked if the ending of QE will cause stress on sponsor covenants, John Hancock Financial Services chief economist, Megan Greene, said: “We should see it [stress] as rates are going up, as they will have a hard time funding their debt.”

Waugh agreed and said relying on long-term rates is not going to save your pension crisis and that the industry has never been good at predicting the effect changing rates will have.

Discussing whether they think QE may return in the future, the panel agreed.

“It looks likely that we’ll have another recession in the next couple of years”, Greene said.

Waugh added: “I’m not confident we won’t see it [QE] again, but if you put it in the wrong hands you will get burnt … it’s fine if we have central bankers controlling it, but if you put it in the hands of the politicians it’s over.”

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