The Bank of England has launched a robust defence of quantitative easing claiming it has helped the economy and not affected pensioners.
In its report, Assessing the Distributional Effects of Asset Purchases, it says economic growth would have been worse without action and subsequently pension funds have benefited through better yielding investments.
It states: “Without the bank’s asset purchases, most people in the UK would have been worse off. This would have had a significant detrimental impact on savers and pensioners along with every other group in our society. All assessments of the effect of asset purchases must be seen in this light.”
It adds: “For a typical fully-funded pension scheme, asset purchases are likely to have had a broadly neutral impact on the net value of the scheme. The fall in gilt yields raised the value of the pension fund’s liabilities. But the associated increase in bond and equity prices raised the value of their assets by a similar amount.”
For a defined benefit pension scheme in substantial deficit, it says asset purchases are likely to have increased the size of the deficit but the burden will lie with employers rather than upcoming pensioners.
DeVere Group chief executive Nigel Green attacked the report’s findings saying it is in sharp contrast to the reality for pensioners.
He says: “There can be no doubt that QE has made millions of pensioners permanently poorer. Those who are nearing retirement have found that their future retirement income has been adversely affected by QE as the value of annuities purchased is based on the return from gilts.
“The demand for these gilts soars as the Bank of England buys them in the easing process, which pushes the price up but reduces the yield.”
The report says low interest rates are the main reason behind a tough saving environment and not asset purchases.
It says QE had boosted a range of asset prices and the value of households’ financial wealth held outside pension funds. But the richest have benefited most with the top 5 per cent of households holding 40 per cent of these assets.