The Bank of England’s Monetary Policy Committee’s unanimous decision to maintain interest rates at 0.25 per cent is "not good news" for the pensions industry.

Last month, the Bank of England announced the slashing of interest rates for the first time since 2009 and has now agreed for it to remain at this level.

The news does not come as a positive for UK pension schemes as falling gilt yields, as a result of low interest rates have been followed by rising deficits.

Furthermore, former Pensions Minister, Ros Altmann recently called on the government to launch an inquiry into the effects of these lower interest rates. Her analysis suggested that several aspects of pensions, such as annuity purchases and companies with DB schemes, are being “damaged” as a result of the current monetary policy.

Altmann explained that low interest rates and more QE will reduce the disposable income of savers and pensioners.

JLT Employee Benefits director Charles Cowling said: “As expected interest rates have stayed unchanged. With little sign that Brexit is having an effect on inflation just yet, there is no pressure on the Bank of England to raise interest rate rises.

“If markets are to be believed we could see interest rates stay at current record lows for the next five years, which is not good news for pension schemes. This means there is no respite in sight from the record pension deficits caused by the Bank’s interest rate policy. As a result, there are going to be inexorable demands on employers for significant increases to cash funding of pension schemes. This will not be good news for share prices or dividends.”

PwC head of pensions global Raj Mody commented: "Today's interest rate announcement and this week's inflation news signal a period of relative stability. Pension funds seem to have anticipated the challenging economic conditions ahead for now. PwC's Skyval Index shows the total funding deficit has shown early signs of recovery this month, with the deficit standing at £630bn, down from £710bn around the end of August - this is the measure of cash financing pension fund trustees require from companies over time, across the UK's c6000 defined benefit private sector plans.

"Pension funds should revisit their approach to how they measure their own deficit, and question whether gilt yield linked measures are still entirely relevant for them. Getting the right measure matters. It's like driving a car from A to B with a faulty fuel gauge - you might stop too often because you think you need to fill up the tank, when actually you don't, or equally you might run out of fuel unexpectedly. Having the wrong measures can lead to the wrong strategy.”

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