NAPF chairman, Mark Hyde Harrison, speaking at the organisation’s conference in Liverpool today, called on the Chancellor of the Exchequer, George Osborne, to sanction a temporary increase in the discount rates used by pension funds, in his autumn statement on 5 December.
He said: “Discount rates are being calculated on artificially depressed gilt yields, and those false foundations are putting a lot of stress on businesses trying to keep a final salary pension going. We cannot predict the next 40-50 years on the basis of gilt prices that have been in turmoil for the past three years.”
Even before the £50bn of QE announced in March, the NAPF estimated that QE had increased pension fund deficits by £90bn by depressing gilt yields and that the government risked damaging the UK economy by refusing to give businesses more flexibility on how they calculate scheme deficits.
The NAPF said that increasing discount rates by 0.5% would potentially halve the deficits in the schemes of FTSE350 companies currently agreeing recovery plans, without putting the benefits of savers and pensioners at risk, and would free up cash for firms to invest.
Hyde Harrison said: “The current approach to pricing pension funds risks undermining our faltering economy. Businesses are very worried about channelling cash away from jobs and investment, and into pension deficits. This could damage the wider economy, which is the opposite of what QE is meant to do.”