Commenting on the Pensions Regulator's Annual Funding Statement, Dr. Ros Altmann, Director-General of Saga said:
"The Pensions Regulator's statement is very interesting and clearly carefully crafted. QE has put UK defined benefit pensions in an even more difficult position than they were before, as it has led to a sharp rise in liabilities and many firms are struggling to manage their deficits. This means that the Regulator has had to tread a fine line between, on the one hand, allowing employers too much leeway to ignore worsening funding positions and, on the other hand, forcing them to fill their pension holes too quickly, thereby undermining the sponsoring company itself.
Therefore, the Regulator is right to sound tough and warn shareholders that the pension fund has precedence over their interests in the company, and also to suggest that dividend payments should not be prioritised over pension contributions, however it has also introduced a note of pragmatism, by suggesting that investing to ensure business survival or retaining earnings to grow the company can be more important at the moment given the economic environment. than responding to the problems caused by QE which may turn out to be temporary.
Although I understand the reluctance to be seen to accommodate a more lenient approach to deficit funding, I would have liked to see some acknowledgment that the problems caused by QE may turn out to be temporary. It is rather disappointing that the Regulator has not been clearer about the damage done to deficits by QE - which has temporarily and artificially depressed gilt yields significantly. Since 2008, gilt yields have fallen by over 2.5%, which causes a rise in liabilities for most pension schemes of 50% during that time. With a high fiscal deficit and inflation, it seems clear that gilt yields around 2% do not reflect the fundamentals of the UK economy and rates are currently depressed by official Bank of England gilt-buying. So I hope in practice that companies will not feel forced to divert resources into their pension scheme rather than investing in their businesses and thus damaging growth. Indeed, it would be tragic if companies are forced into insolvency by these inflated deficits, when part of the problem is an attempt by policymakers to improve the economy!"
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