Pension Funds call for leeway on £45bn bill for QE2 | PLSA
Pension Funds call for leeway on £45bn bill for QE2

Pension Funds call for leeway on £45bn bill for QE2

19 October 2011

The latest round of Quantitative Easing could increase the deficits of UK pension funds by £45bn, putting more pressure on final salary pension schemes to close, the National Association of Pension Funds (NAPF) warned today (Weds).

It called on The Pensions Regulator to consider a range of options to give pension funds more breathing space, including: extending recovery periods, smoothing valuation results, and postponing valuation dates.

In his keynote speech to the NAPF’s Annual Conference and Exhibition, which opens today in Manchester, NAPF Chairman Lindsay Tomlinson said that around 1,000 funds were especially at risk of a double hit from the “torture of quantitative easing”.

These funds were valued by the Regulator three years ago under its triennial valuation system, and at a time when the last round of Quantitative Easing (QE) was unleashed. Once again, they are now set to see their position heavily undervalued because of the distortions of QE.

Mr Tomlinson said that those firms that are unlucky in the “valuations lottery” are at a sharp competitive disadvantage at a difficult economic time. Many will be forced to plough more money into their pension schemes to meet the Regulator’s requirements.

Lindsay Tomlinson, NAPF Chairman, said:

“Pension funds want to see a strong economy, so we understand the thinking behind the latest tranche of QE, but this is a strong medicine with some nasty side-effects.

“QE is a key ingredient in a recipe that is destroying the value of the UK’s retirement savings. It’s a torture for pension funds because it artificially suppresses long term interest rates.

“Pension funds are already struggling with gaping deficits, and now they are being forced to carry an extra £45bn. They need help with that.

“We must avoid a valuation lottery in which pension funds ensnared by QE end up having to pay more into recovery programs than their competitors.

“The Regulator has a range of tools it could look to, including extending recovery periods, smoothing triennial valuation results, or deferring valuation dates.”

Initial NAPF estimates suggest that the latest round of QE will add £55bn to pension fund liabilities and £10bn to assets, adding £45bn to overall deficits.

The NAPF met The Pensions Regulator last week to outline its headline concerns about QE. The NAPF aims to focus on the following options in further discussions with the Regulator.

- Extending recovery periods to allow for the one-off impact of QE, while ensuring that recovery plans are robust.

- Smoothing triennial valuations by allowing schemes to measure average asset values over a period either side of the valuation date.

- Deferring valuation dates until after the end of the QE period, when gilt yields have normalised. Alternatively, they could be allowed to produce a second valuation figure that excludes the impact of QE.

Mr Tomlinson also warned the NAPF Conference that QE created a paradox for pension funds in that the sale of their gilts may cause their Pension Protection Fund levy to rise, because they are deemed to have invested in riskier assets.

QE affects defined benefit ‘final salary’ pension schemes by pushing up the price of gilts, which means lower returns on pension funds’ new investments in gilts and on other investments more generally.

QE increases liabilities for DB pension schemes because QE holds down gilt yields and interest rates and, therefore, the discount rates that are used by actuaries in liabilities calculations.

It will increase deficits because of the disproportionate, fivefold negative impact on liabilities compared to the positive impact on assets, resulting in more challenging recovery plans and employers having to make increased contributions to their company pension schemes, increasing the risks of scheme closure.

Notes to Editors:

1. Lindsay Tomlinson and NAPF Chief Executive Joanne Segars are available for interview. Radio interviews can be held over the NAPF’s ISDN line.

2. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

3. The NAPF Annual Conference and Exhibition opens today at Manchester Central. It is the UK’s leading pension events, and around 1200 delegates are due to attend. The full programme can be seen at

4. A copy of Lindsay Tomlinson’s speech will be available shortly before its delivery at 13h30 on Wednesday 19 October. The quotes in the press release above are largely but not fully identical to those in the speech. The NAPF has a backgrounder summary document about QE and pension funds available to journalists.


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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