Pensions expert and former government minister, Ros Altmann, has cited the example of the Bank of England’s own pension fund to illustrate the difficulties being caused by quantitative easing (QE).
Altmann said that QE, which has reduced interest rates and therefore increased pension liabilities, has caused huge damage to final salary pension funds. The Bank of England pension fund holds only bonds, but Altmann said the latest set of accounts show that its assets are not keeping up with the growth in its liabilities, requiring ever-larger employer contributions, which are funded by taxpayers. In fact, the employer contributions are now over 50% of salary, Altmann noted. She commented: “The conventional wisdom that bonds will match pension liabilities is not reliable and either extra returns are required, or employers must pay significantly more to support their schemes.”
Altmann added that one of the ways that QE is intended to encourage economic growth, is by making pension funds invest in riskier assets as government bonds become more expensive, as yields are forced down. But she said the experience of the Bank of England’s own pension fund show that this is not happening in practice. Perversely, employers are now having to fund extra pension contributions, rather than use resources for their core business activities. “QE will potentially require even more corporate resources to be diverted from productivity enhancing investment into pension deficit funding and will weaken corporate balance sheets. This is hardly expansionary,” Altmann commented. She added that because the UK funded pension sector is relatively large, the impact of QE could be bad for the UK economy, rather than acting as a growth stimulus.