Call to relax pension plan rules

PensionerPension funds have urged the Government to relax rules surrounding retirement schemes to help them cope with yawning deficits caused by measures to stimulate the economy.

The National Association of Pension Funds (NAPF) estimates that the Bank of England's quantitative easing (QE) programme has increased pension fund deficits by around £90 billion.

Mark Hyde Harrison, chairman of the NAPF, told the Treasury Committee how firms are being forced to divert cash into plugging the "funding gaps" in schemes rather than using the money to grow their business. He said that the framework of regulations requiring companies to fill pensions gaps needs to be eased.

Mr Hyde Harrison told MPs: "I think the Government should give a direction to the Pensions Regulator to be more flexible."

The Bank of England has injected £375 billion into the economy since 2009 by buying government bonds, which has driven up their price and reduced their return, or yield.

Analysts have pointed out that this has had the knock-on effect of making final salary pension schemes appear more in the red as they are also calculated with reference to the gilt yields from government bonds.

The NAPF has argued that the "false foundations" of artificially depressed gilt yields have piled extra stress on businesses. This comes at a time when the Government's landmark automatic enrolment scheme, which will eventually see up to 10 million people placed in workplace pensions, is being rolled out.

QE has also reduced the incomes of recent retirees using their pension pot to buy an annuity, which sets the size of their income for life, as annuities are also linked to gilt yields.

Saga director-general Ros Altmann said in her evidence to the committee that the combination of low interest rates, which have given savers little return for their cash, and QE have acted like a "tax increase" on older people. Dr Altmann told the hearing: "I think history will judge this as a monumental mistake."

She said the economy is in "unprecedented territory" and the gilt market has never been distorted in such a way. Dr Altmann said that the Bank of England has not properly considered whether carrying out a policy which penalises certain sections of society is acceptable, because it has assumed that the path it has taken was the only option.

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