Mervyn King, governor of the Bank of England, says claims that quantitative easing (QE) has caused significant damage to pension funds are exaggerated.
According to the Telegraph, King told the House of Lords yesterday that the fall in the value of pension funds is not down to the Bank’s £325 billion QE programme.
He said: “I am concerned about what has happened to the pensions industry and defined benefit pensions but I think they reflect a wider set of issues. The decline cannot be laid at the door of our programme.
“It might not have had quite such as big an effect as some people think.”
In February, the National Association of Pension Funds (NAPF) warned that QE will push up pension fund deficits, causing more employers to close defined benefit schemes.
Joanne Segars, chief executive of the NAPF, said the monetary policy committee’s decision to pump an extra £50 billion into the QE programme in February increased pension fund deficits by £45 billion.
She said: “This short-term stimulus is leaving pensioners and pension funds in long-term pain. Our fear is that firms struggling with a weak economy will simply choose to close their pension schemes.
“We think the last hit of QE increased pension fund deficits by around £45 billion, and the latest tranche will only add to that bill.”
King refused to rule out an increase to the QE programme.
Minutes from the MPC’s March meeting show the nine members were split 7-2 over whether to increase the size of the programme, with David Miles and Adam Posen voting to increase it by £25 billion to £350 billion.