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NAPF says pension funds will not go for 100-year bonds

The National Association of Pension Funds says the Government’s proposal to launch 100- year bonds is unlikely to be of interest to pension funds, which tend to prefer 30 to 50-year index-linked debt.

Last week, the Treasury floated the idea of issuing “superlong gilts” which would enable the Government to borrow money over the long term and locking in today’s historically low interest rates.

NAPF chief executive Joanne Segars says at 100 years, the bonds would be too long term for most funds, with many preferring 30 to 50-year indexlinked debt. She says: “We do not think many funds would buy them. Their liabilities are long term but not that long term. Even if the bonds were attractive in duration, there would be a question mark over whether they would yield a strong enough return for investors.”

Saga chief executive Ros Altmann says the move would be good for Treasury coffers but is unlikely to be attractive to investors.

She says: “Pension scheme durations are nearer 20 years than 100 years, so ultra-long gilts may not find favour with many pension investors, especially not at current yield levels.”

Fund managers are divided over whether there will be much interest from investors.

Aberdeen Asset Management head of global strategy and asset allocation Mike Turner says the certainty offered by 100-year gilts could be used to balance more volatile assets. He says: “There will be demand from banks and pension funds.”

But M&G head of retail fixed interest Jim Leaviss says: “Few managers would argue that 3.5 per cent yield is good value, given the inflation issue and political uncertainty over the next century.”

Shadow Treasury chief secretary Rachel Reeves says Labour will heavily scrutinise any concrete proposals put forward by the Government but the move is also likely to come under pressure from some Conservatives.

Tory MP for Clacton Douglas Carswell says: “I was hoping to see new innovative ways of reducing our debt rather than the Treasury scratching around to find ways of stretching it further into the future.”

Fellow Tory MP and all-party Parliamentary group on economics money and banking chair Steve Baker says the bonds would saddle future generations with debt. He says: “That is immoral but the Chancellor is in a real spot. He has to refinance the debt but if pension funds do not want them, it is difficult to see who will.”

Altmann says to woo investment from pension funds, Osborne should instead look at issuing gilts which help hedge against increasing life expectancy. She says: “This would help funds match their liabilities more directly and would potentially carry little or no coupon in the short term.”

If all else fails, Baker says he can see the Bank of England, the lender of last resort, stepping in.

He says: “We have had £325bn of quantitative easing so far and if 100-year bonds ever see the light of day, I would not be surprised to see the bank ending up holding a load of them.”

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