The National Association of Pension Funds (NAPF) commented on the call for evidence on the impact of funding defined benefit (DB) pensions on investment and growth, which was published by the Department for Work and Pensions (DWP) today.
Darren Philp, NAPF Policy Director, said:
“While it is good that the Government has recognised the damaging impacts of QE and the low interest rate environment on pension funds, we are worried that this is all too little, too late.
“Pension schemes that have been going through their valuations over the past 12 months need the most help as they will be most affected by record low returns on gilts. We are worried that these proposals would sideline this issue and do nothing to help these schemes.
“The smoothing approach being suggested risks making matters worse for schemes once interest rates start picking up, and could cause greater confusion for trustees, actuaries and employers when agreeing a discount rate.
“We need a quick, simple and temporary approach that gives trustees and employers more wriggle room. We need something that schemes can benefit from quickly, which is why we think the best way forward is reassurance from the Regulator that a simple and transparent adjustment can be made to the discount rates being used by schemes now.
“We welcome the Government consulting on a new objective for the Regulator. We have long argued that the Regulator needs to take into account the longer term sustainability of workplace pensions.”
Last year, the NAPF urged the Government to help pension funds by signalling that an adjustment to discount rates based on gilt yields, or an alternative discount rate approach, is appropriate.
QE has forced gilt prices up, reducing the yields that investors like pension funds make on them. This has increased pensions deficits significantly. Companies are having to direct important resources away from job creation and innovation into filling pension holes, and might decide to shut these pensions down altogether, further undermining the UK’s retirement provision.
The NAPF estimated last year that QE had increased deficits by at least £90bn with the £375bn of QE over the last three years.
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