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QE2 will be ‘torture’ for pension funds

The National Association of Pension Funds has warned the Bank of England’s latest round of quantitative easing could cause a £45bn increase in UK pension fund deficits.

The new QE2 programme is adding £75bn to the £200bn previous QE tranches.

The move is expected to harm UK pension schemes as gilts are likely to become more expensive, depressing interest rates and reducing the return on pension fund investments.

NAPF chairman Lindsay Tomlinson has urged The Pensions Regulator to take action to ease the funding burden on defined-benefit pension schemes.

He says: “Quantitative easing is a key ingredient in a recipe that is destroying the value of the UK’s retir ment savings. It is 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.”

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