By Amanda Leek
The total deficit of the UK DB pension schemes would be up to £375bn less without the recent quantitative easing (QE) programme, according to research from Bluefin Corporate Consulting.
The findings contradict the Bank of England’s paper on the distributional effects of QE claiming pension funds and annuity purchasers were not hurt by the cash injection.
Bluefin Head of Actuarial and Investment Julie Stothard said: “Quantitative easing has had some positive effect on the UK pensions industry, as the Bank of England recognised. For one thing, it has kept many businesses afloat throughout the financial downturn, ensuring the continuation of company pension schemes that might otherwise have collapsed.”
But she stated that for every pound the Bank spent through QE, one pound was added to DB pension scheme deficits, making the impact on DB scheme deficits significant.
Bluefin has urged Pensions Minister Steve Webb to consider further measures to offset the impact of QE on pension schemes, including smoothing the discount rate used to value liabilities.
Stothard said: “Denmark, Sweden and the Netherlands have had considerable success by smoothing their discount rates. With gilt yields falling to record lows, there could be considerable benefits to the UK following the Danish example of using the market rate only for pricing short-term duration bonds, and a fixed rate for those with longer durations.”