View more on these topics

NAPF chair calls for more long-dated Govt gilts in PBR

National Association of Pension Funds chairman Chris Hitchen has called on Chancellor Alistair Darling to announce the Government will issue more long-dated gilts in Monday’s pre-Budget report.

In a letter sent to Darling on Friday, Hitchen said issuing more long-dated fixed and index-linked gilts would result in a “win-win” situation for pension funds and their members as well as the Government and UK companies.

He said pension funds and insurance companies could benefit from increased availability of a strategic asset and reduced pressure on their balance sheets.

Meanwhile the Government would have greater access to funding at low rates of interest and companies would have increased access to finance at short and medium durations with less “crowding out” by Government borrowing.

He said: “You will be aware that the yield curves for both conventional and index-linked gilts are often inverted, with lower yields available to long-term investors than short-term investors. The NAPF believes this is clear evidence that more issuance can be absorbed at the long end.”

If issuance is substantially skewed towards the long-end it would eventually cause yields to rise according to Hitchen. But he said in the meantime the Government would have the opportunity to raise funding at low cost.

He said: “Pension funds will be able to obtain greater quantities of low-risk assets, thereby reducing risks for scheme sponsors, members and the Pension Protection Funds. Just as significantly, because liabilities are valued by reference to long bond yields, there will be a notable improvement in scheme funding levels. This will be an important factor in helping to keep DB schemes open in the current economic downturn.”

Hitched added that the Government is best placed to issue long-dated paper as investors are unwilling to risk long-term exposure to corporate covenants.



News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm