Bank defends effect of quantitative easing on pension pots

24 May 2012

The deputy governor of the Bank of England's decision making committee has defended its use of quantitative easing (QE) as savers see their pension pots squeezed.

Talking to the National Association of Pension Funds (NAPF), Charlie Bean said that QE was only one of a range of different factors to affect the value of pension funds and that the impact is 'often exaggerated.'

QE - the buying of gilts, effectively injecting cash into the economy - is designed to kick start the economy, but has been accused of worsening pension deficits, forcing companies to inject more into pension funds as opposed to the business, and lowering annuity rates.

The speech came ahead of the publication of the latest minutes to this month's Monetary Policy Committee meeting, which revealed increasing discussions to initiate another £25 billion round of QE. This would take the total amount of QE to £350 billion.

Speaking to the NAPF, Mr Bean, warned: "If conditions do deteriorate significantly, we may need to re-start the programme of purchases."

He added: "Pension funds and their sponsors may, I am afraid, have to contend with low yields for some considerable time yet."

A report by the International Monetary Fund (IMF) also recommended that more QE was needed to boost the UK economy.

In a statement, Chief executive of the NAPF, Joanne Segars, said: "If there is to be more QE then the Government needs to do more thinking about the impact on pension funds. QE has driven pension funds further into the red and leaves those trying to buy an annuity with a worse deal, which they are then locked into for life. We are being told it will all be worth it in the long-run, but in the short-run pension funds and pensioners are being left to deal with the pain."

Talking to The Telegraph, she added: "The Government really must consider options to help - such as the suggestion of a higher individual savings account (ISA) allowance for pensioners to enable them to obtain greater tax-free income from their savings."