Companies Left with £90bn Pension Bill Due To Quantitative Easing

Today MPs were told the £375bn of Bank of England quantitative easing has left UK companies in a position where they will have to find £90bn to fill pension fund deficits.

Chairman of the National Association of Pension Funds, Mark Hyde-Harrison told members of the House of Commons Treasury Select Committee looking at the Bank's plans to buy government bonds, or QE, to stimulate the economy:

Inflexible pension regulations meant companies had to pay down these deficits, leaving them unable to use the funds to strengthen their balance sheets. This had the knock-on effect of limiting growth in the economy.

A strong economy and strong companies produce good pension funds.

Quantitative easing has raised the price of gilts, as well as lowering yields and reduced the returns on pension investments, which in turn has helped push final-salary pension schemes into large deficits.

This is because Government bonds are used by pension funds to ensure they have the necessary funds to payout members in future. The low gilt yields, coupled with low interest rates, has meant that pension schemes have had to hold more assets to meet there financial outlays.

Mr Hyde Harrison went on to say that pension schemes would need to find an additional £9bn a year over the next ten years to fill the gap.

He was had concerns that when the time came to turn back quantitative easing that the Bank would fulfill its promise to buy back the bonds and not to cancel them instead.

Pension expert Ros Altman also told the committee that quantitative easing had been a "tax on pensions" and "savers". She said that the policy was meant to be expansionary but not for pensioners.

Asset purchase have raised the cost of annuities

she said, adding that the consequences of quantitative easing on pensions had been "overlooked".

While the benefits of asset purchases may have had short-term benefits for the whole economy, it had distorted long-term savings schemes

she added.

The Bank of England has stated previously that without quantitative easing the subsequent financial fall-out would have left pension funds and savers worse off. It's argument being that its "money printing" programme staved off a much deeper recession than the one experienced and therefore had bigger positives than just the factors discussed today.