QE Could See Plan Sponsors Stump Up Billions in Contributions
24 August 2012 (PLANSPONSOREurope.com) - Further rounds of quantitative easing in the UK could see plan sponsors stump up around £100bn in contributions to shore up pension funds over the next three years, Mark Gull, Co-head of ALM at Pension Corporation, has told PLANSPONSOR Europe.
Gull’s comments follow Bank of England comments yesterday that the impact of QE has meant that the incomes of those already drawing a pension before QE began will have been unaffected.
But Gull told PLANSPONSOR Europe: “When it was launched, QE did have wider benefits to the economy, but the programme in its current form has run its course. It is now detrimental to defined benefit pension funds and their corporate sponsors.
“On the Bank of England’s figures, the first round of QE lowered gilt yields by 1 per cent, pushing out pension fund liabilities by £200bn, and boosted the stock market by 20 per cent. The net effect of this was to add £74bn to pension fund deficits. Following the further rounds of QE, we estimate that that up to £100bn of contributions could be paid by corporate sponsors to pension funds over the next three years, or 13% of UK corporate cash holdings. This is money which could be put to use investing in jobs and growth.
“Deficits most certainly have been enlarged by the QE programme and it is time for the Government to consider other options that help the economy and at the same time help pension funds and their sponsors.”