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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension funds frosty over IMF quantitative easing call

Pension funds have warned against a fresh bout of quantitative easing after the International Monetary Fund said the move was needed to help secure the UK’s economic recovery.


In a statement issued today at the conclusion of its latest review of the UK economy, the IMF hailed the ‘bold monetary stimulus’ introduced so far, which it said had helped to rebalance and stabilise the economy.

To encourage a ‘sustainable’ recovery, the IMF called for a fresh tranche of money to be pumped into the economy by the Bank of England. ‘Monetary stimulus can be provided via further quantitative easing,’ it said. ‘Evidence suggests that QE can continue to support demand by lowering long-term interest rates and improving banks’ liquidity.’

The Bank of England should also consider cutting interest rates below their current level of 0.5% as a further monetary stimulus, it added.

However, the chief executive of the National Association of Pension Funds, Joanne Segars, said previous injections of QE, which have totalled £325bn since 2009, had damaged pension funds and the government should think hard before using the measure again.

QE affects pension funds by pushing up the price of government gilts and, in turn, reducing the yield on the gilts which many pension funds have invested heavily in. By pushing gilt yields down it also affects how pension fund liabilities are calculated, making it more expensive to meet the cost of the benefits promised under a scheme.

Ms Segars said: ‘If there is to be more QE then the Government needs to do more thinking about the impact on pension funds. QE has driven pension funds further into the red and leaves those trying to buy an annuity with a worse deal, which they are then locked into for life,’ he said.

‘We are being told it will all be worth it in the long-run, but in the short-run pension funds and pensioners are being left to deal with the pain. They need, and deserve, much more support.’

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, also called for careful consideration before any fresh bout of QE.

‘The jury is still out as to whether more QE would be a good move were the crisis to escalate,’ he said. ‘Gilt yields are already very low and, given the degree of uncertainty, there is no guarantee that asset prices would respond.

‘In that situation the Bank might be better revisiting some of the policies it adopted in 2008/09 and offering more direct support to reduce the borrowing costs of the banking sector and to boost liquidity.’

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