Senior Bank official hits out at pension funds’ gilt complaints
QUANTITATIVE easing (QE) has not hurt pension funds nearly as much as they claim, the Bank of England’s Charlie Bean said yesterday – and complaining about the impact of the policy may be distracting trustees from genuine long-term threats.
Although QE is designed to push down gilt yields, which reduces returns for pension funds investing in the bonds, Bean pointed to other positive effects. He said that funds already holding gilts saw the value of those assets and equities rise.
“Equity prices rose substantially once QE was actually under way – by around 50 per cent during QE1 and around 10 per cent during QE2,” he told a National Association of Pension Funds conference.
“In both cases, the switch from decline to growth coincides with the commencement of asset purchases.”
Bean also warned pension funds that spending so much of their time and effort objecting to QE could mean they miss other important threats.
“The excessive focus on QE as a cause of low long-term risk-free interest rates risks distracting attention from other factors driving yields which may present a more durable challenge to the sponsors and trustees of pension funds,” he explained.
Those other factors include the rush of investors into the UK’s “safe haven” gilt market, slowing economic growth, and the deep Eurozone crisis, he said.