Plan Sponsors Need Help From Regulator to Mitigate Effects of QE
20 August 2012 (PLANSPONSOREurope.com) - UK plan sponsors are continuing to feel the adverse effects of quantitative easing with a survey from global provider of fiduciary management SEI revealing pension trustees do not think the Regulator has gone far enough to mitigate its impact.
The poll reveals 80% of those surveyed felt that the Regulator should provide more flexibility in the current rules to reduce the impact of QE on pension scheme liabilities. In April this year, the Regulator announced that it would provide flexibility in recovery plans where sponsors were struggling to pay, but ruled out any more far-reaching allowances around assumptions or other rules.
The respondents who felt that more flexibility should be introduced were also asked which change would affect them most with half of those surveyed claiming that pension scheme liabilities should be based on an average of the last three years’ bond yields. One in four (38%) felt that the period for meeting funding objectives should be extended, and 12% felt that the pension protection levy should be decreased.
Charles Marandu, Director, European Institutional Advice, SEI’s Institutional Group, said: “The results demonstrate that pension-scheme trustees remain concerned that QE is distorting market interest rates and pushing up scheme deficits. The Pensions Regulator’s statement that flexibility exists within recovery plans seems to have given trustees little comfort, as there was no relief for headline scheme deficits. Most trustees polled favoured smoothing the volatility in funding positions by using an average of historical interest rates to determine the funding liabilities, but, as yet, these measures have been resisted by the authorities.
“One possible relief measure could be to allow a degree of extra flexibility in the setting of discount rates which explicitly adjusts for QE without necessarily requiring the scheme investment policy to be re-risked in order to support it.”