'Smoothing' assets and liabilities to try and even out the impact of QE could backfire, locking many pension funds into low gilt yields, just as they start to recover, the National Association of Pension Funds (NAPF) warned today.

The smoothing of assets and liabilities could eventually lead to funds' overall funding positions being weakened, leading to increased deficits for pension funds. The NAPF has argued that the government "should ensure that the full flexibility of the existing discount rate regime is used instead."

NAPF director of policy Darren Philp said: "Smoothing is not the right answer. If it goes ahead not only will it be too little, too late, but it might do more harm than good. It risks making matters worse for pension funds once interest rates start picking up; and could cause greater confusion for trustees, actuaries and employers when agreeing a discount rate.

"Pension funds need help now, and the quickest, simplest way of doing that is by ensuring that the flexibility of the current system is used. To do that pension funds need greater reassurance from the government and the Pensions Regulator that they can adjust the discount rates they use where they have been pegged to gilt yields."

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