The Bank of England statement, that QE had no negative impact on pension funds and pensioners would be worse off without it, is simplistic according to Pension Corporation co-head of asset and liability management Mark Gull.

The focus on the impact on pensioners misses the essential point that bigger pension fund deficits mean money away from UK companies and into pension schemes, up to £100bn over 3 years PC estimated. This money could be better used to create jobs and growth. In addition, lower bond yields only benefit those companies that are big enough to issue bonds, not the SME sector which depends on non-functional banks for funding.

Gull said the Bank’s analysis of UK DB schemes is flawed. A typical scheme has a duration mis-match, typically more than 5 years, so lower gilt yields have a bigger impact on pushing liabilities up than pushing gilt assets up. A typical scheme has about 45 per cent invested in equities today.

Before last month’s MPC meeting where the third round of QE was put in motion, Gull said: “Pension funds have long-dated liabilities and should be encouraged to go into long-dated investments. Instead of pension funds being collateral damage in the race to shore up the economy, policy should utilise them in a growth oriented solution.”

He added: “Real yields are very low, causing pension funds a significant amount of pain. We estimate corporate sponsors will have to pay an additional £100bn into their funds over the next three years just to make good increased deficits. This is a direct consequence of ultra-low gilt yields. This money could be better spent on investment in jobs.”

The Chancellor’s number one metric for measuring the strength of the economy is the yield available on UK gilts, now synthetically lower than for German bonds. Gull said: “By this measure, and this measure alone, he is succeeding in keeping the UK out of the emergency room.”

He added QE has the characteristics of financial repression – an enforced transfer of assets, unduly targeting pension funds and their corporate sponsors, thereby tripping up the recovery.

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