The former Conservative pensions minister, Ros Altmann, has launched an extraordinary attack on the Bank of England for making pensions ruinously expensive for employers while enjoying lavish subsidies from the taxpayer for its own pension scheme.

It has emerged that employees, led by the Bank’s governor, Mark Carney, received the equivalent of a 50%-plus salary contribution into their pensions last year, underwritten by the taxpayer. Most private employers pay 5-10% of salary into pensions, with many large companies struggling to cope with widening deficits in their schemes.

Lady Altmann, who was pensions minister under David Cameron, blamed the Bank’s quantitative easing programme (QE) for creating ever-larger deficits, while itself being insulated from the problems caused by its policies.


Ros Altmann.

“The private sector cannot just keep on putting more and more money into the seemingly bottomless pension pit,” said Altmann, accusing the Bank of complacency. “The Bank has been insulated from the problems caused by QE because its own pension scheme is funded by taxpayers.”

QE, where the Bank of England creates money to buy government bonds, has the effect of pushing down the interest rate, or yield on government bonds. It means lower mortgage rates, and lower interest rates on bank deposits. But it also spells hardship for final-salary-based pension funds, as lower interest rates mean investments will not grow as much to meet the bill for paying future pensioners. So employers have to pay more in now to fill the gap.

In a detailed analysis of the Bank’s pension scheme circulated to the media on Monday, Altmann said its employer contributions exceeded 50%. “The Bank of England scheme required employer contributions of well over 50% of salary for the year ending February 2016. It also pays all the administration and [pension protection fund] costs, on top of the employer contributions. Such costs would be ruinous for most private sector employers struggling to fix their defined benefit pension deficits.”

Royal Mail is typical of companies in the private sector with expensive final-salary-style pension schemes. It faces a battle with its 140,000 workers over plans to slash its employer contribution from 45% of salary to 12%, claiming the cost was “simply unaffordable”.

Altmann said: “Taxpayers fund the enormous employer contributions which have been required to overcome the Bank of England pension scheme deficit, while Bank of England employees do not contribute at all. This may help explain why the Bank of England seems so complacent about the pension problems created by its policies. However, the problems are real for most employers and may undermine the effectiveness of QE itself. These side-effects need to be taken more seriously.”

She also accused the Bank of being, in effect, hypocritical after expecting pension schemes to change their approach to managing money and future risks – while doing nothing itself to change.

The theory behind the Bank’s QE programme is that as it drives down interest rates on bonds, businesses and consumers spend and invest rather than keeping their money on deposit. Altmann argues this is not happening.

“QE is meant to be expansionary as institutions switch to riskier assets – but even the BofE scheme isn’t doing this. Since the [EU referendum] the combined impact of Brexit uncertainty and the £70bn QE boost has led to a significant further drop in long yields.

“The Bank of England says QE will impart monetary stimulus and ‘trigger portfolio rebalancing into riskier assets by current holders of government bonds’. But even the Bank of England’s own pension scheme is not switching to higher-risk assets. Most institutional investors, such as pension funds or insurers, do not take more risk due to regulatory constraints. Therefore, QE may not be working as intended. This helps to explain why the Bank has already struggled to find enough bonds to buy.”

She highlighted how the Bank’s pension scheme was entirely invested in bonds that have failed to keep up with future liabilities to former employees.

“Even though it is fully invested in gilts and bonds, it has had to overcome a deficit and, although it moved back to 99% funding in early 2016, the latest round of QE may cause further underfunding. But the Bank can rely on ever-increasing contributions from taxpayers,” Altmann said.

“Pushing long rates down is not going to fix the economy and is causing pension problems that are being worryingly ignored. QE has damaging side-effects that could undermine its intent. Especially as the UK has so much money in funded pensions and insurance – much more than other countries.”



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