The National Association of Pension Funds is calling for the The Pensions Regulator to relax its rules to help pensioners deal with the effects of quantitative easing.
The Bank of England has spent £375bn on gilts since 2009 pushing down returns on index-linked schemes and forcing higher contributions to make up the shortfall.
Speaking to the Treasury select committee today as part of an inquiry into QE, NAPF chairman Martin Hyde-Harrison called on the Government to pressure the regulator to be “more flexible” so funds can limit the impact of QE.
He said: “Many of the effects of QE could be mitigated by other institutions. We do not have a problem with the Bank of England but with The Pensions Regulator.
“The Government should give a direction to The Pensions Regulator to be more flexible in the way it interprets the regulations.
“We are grateful that it is considering changing one of its objectives to consider the affordability of pension contributions from employers. If we do get a change in the pressure put on The Pensions Regulator then it will help deal with the distributional effects of QE.”
Speaking alongside Hyde-Harrison, Retirement Policy Council chairman Ruston Smith and Pensions Insurance Corporation head of asset and liability management Mark Gull both agreed.
Smith said: “I would very much agree. The important thing is that some will want to make use of further flexibility while others will not, so it should not be more prescriptive. It should allow firms to do the right thing for their scheme.”
But Smith criticised the possibility of smoothing, which would allow schemes to fix the cost of gilts over years to prevent market fluctuations.
He said: “The smoothing impact could be detrimental because if interest rates go up with a low yield then there will be a drag. It is important that we have constant communication and try to get this right.”
Hyde-Harrison said smoothing could be appropriate in the future when interest rates are higher, but may create problems now.