'Smoothing' won't help pension funds cope with QE, warns NAPF | PLSA
'Smoothing' won't help pension funds cope with QE, warns NAPF

'Smoothing' won't help pension funds cope with QE, warns NAPF

07 March 2013

Government proposals to try to help pension funds cope with the challenging economic conditions and the negative impacts of quantitative easing (QE) risk making things worse, the National Association of Pension Funds (NAPF) warned today.

The NAPF said that plans to ‘smooth’ assets and liabilities over a number of years to try to even out the impacts of QE could backfire, locking many pension funds into low gilt yields, just as they start to recover.

This would weaken funds’ overall funding position and mean companies running them could face even bigger deficits – failing to deliver on the Chancellor’s aims to stop pension fund deficits acting as a brake on investment and growth.

In its response to a Government consultation published today the NAPF said that plans for ‘smoothing’ should be dropped and the Government should ensure that the full flexibility of the existing discount rate regime is used instead.

The NAPF wants the Government and the Pensions Regulator to give a clearer signal to pension funds that they do not have to peg their return assumptions on low gilt yields that have been deliberately driven down by QE.

The £375bn of QE has deliberately forced gilt prices up, reducing the yields that investors like pension funds make on them. The NAPF has previously estimated that QE has increased pension fund deficits by at least £90bn.

It warns that businesses are under pressure to unnecessarily divert resources away from job creation and innovation into filling pension holes. This could also cause employers to close their scheme to new members or to future accrual.

Darren Philp, Director of Policy, NAPF, said:

“Smoothing is not the right answer. If it goes ahead not only will it be too little, too late, but it might do more harm than good. It risks making matters worse for pension funds once interest rates start picking up, and could cause greater confusion for trustees, actuaries and employers when agreeing a discount rate.

“Pension funds need help now, and the quickest, simplest way of doing that is by ensuring that the flexibility of the current system is used. To do that pension funds need greater reassurance from the Government and the Pensions Regulator that they can adjust the discount rates they use where they have been pegged to gilt yields.

“But we need an approach that balances the interests of employers and trustees. A new statutory objective for the Regulator or further clarification of the flexibility in the regulations is needed.”

Download the response


Notes to editors:

1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

2. The NAPF response to the DWP Call for Evidence – Pensions and Growth ‘Whether to smooth assets and liabilities in scheme funding valuations’ is attached.


Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]

Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]


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