According to the leading economist, Ros Altman, the policy of quantitative easing floated by The Bank of England, has spelt doom for several salaried pension schemes in the United Kingdom. Even while the bank has not extended its QE programme, its policy that forces long-term interest rates lower are likely to cause some serious problems for hordes of pension investment schemes that are being floated by several firms.
Altman also went on to elaborate that despite companies putting in millions of extra pounds into their self-propagated pension schemes in a bid to repair shortfalls, pension deficits have still doubled up in FTSE 100 firms, over the past year or two. And this obviously is a cause of major worry for investors and pension firm owners alike!
Altman refers to this situation as some kind of a “death spiral” for the pension markets. As per her analysis, as the gilt yields depreciate further, pension deficits would automatically appreciate. And the more the deficits, the more would be the urge to de-risk among trustees. This would be leading to purchase of more gilts leading in turn to even graver deficits. This is because, here, the trustees would be competing with The Bank of England, which is also keen on purchasing gilts on account of QE.
She also observed that there were many employers, who were keen on getting rid of their pension risks in entirety. However, this in turn would lead to the risks of becoming completely unaffordable. Companies, therefore, are left with no other option but to find more cash for plugging their deficits in pension funds. This is also resulting in the diversion of funds from expansion of operations and job creation. Though there are several other financial situations in the UK, this is also a very worrying situation for the economy at large.