QE 'blows £90bn hole in pensions'

Around £90 billion has been knocked off the value of final salary pension schemes due to recent quantitative easing (QE) measures, a pensions body has warned.

Businesses will be forced to divert cash away from jobs and investment to fill deficits caused by the second wave of QE over the last six months, the National Association of Pension Funds (NAPF) warned.

Those in defined contribution or money purchase pensions have not escaped the effects of QE either, the NAPF said.

The policy's impact on annuity rates means that someone with a £26,000 pension pot retiring today would receive 22% less income than if they had annuitised four years ago, making them £440 a year worse off.

The NAPF calculated that the first wave of QE, which started three years ago, has increased the cost of funding final salary pension schemes by around £180 billion.

It called for the Bank of England and the Pensions Regulator to make a clear statement explaining how distortions caused by QE make pension deficits look "artificially high".

Joanne Segars, NAPF chief executive, said: "Businesses running final salary pensions are being clouted by QE. Deficits that were already big now look even bigger because of its artificial distortions.

"Pension funds want a stronger economy, so they are on board with the QE project for now. But the latest bout of £125 billion of money printing has blown a £90 billion hole in their side. We need help in managing that. Pension funds cannot be left holding the baby."

QE makes it cheaper for companies to borrow by pushing down the yield on government bonds, but annuity incomes are also based on these yields, meaning new pensioners see their incomes reduced.

Lower gilt yields and long-term interest rates mean that pension funds are more expensive to finance, and so appear deeper in the red.