Low interest rates and quantitative easing may have caused a crisis in many company pension schemes, but the latest figures show the Bank of England’s gold-plated scheme has edged into fully funded status.
An update to its 16,000 pension scheme members last month showed that the Bank had increased contributions to 54.6 per cent of members’ pensionable salary in March 2015, up from 51.8 per cent in 2014 and 24 per cent in 2011.
“Pension spending at this level would be ruinous for most private sector employers,” said Ros Altmann, former pensions minister. “The scale of the contributions required should be of concern to the government.”
The scheme appears so far to have shrugged off the gilt yield falls which have pushed hundreds more company schemes into deficit.
Baroness Altmann said the Bank has not acknowledged the full “damage” its monetary policy has inflicted on private sector schemes, where future pension promises are valued according to gilt yields.
Since the Bank launched its latest round of QE in August, the combined deficit of the UK’s 6,000 corporate defined benefit pension schemes has grown by £100bn to £710bn, on a funding basis, according to PwC, the consultants.
The Bank’s pension scheme trustees conceded in their report that the bond-buying programme had hit the fund, which is almost wholly invested in bonds. The scheme’s assets grew £135m in the year to the end of February 2016 but this was outstripped by a £179m increase in the scheme’s liabilities.
The trustees said that the main reason for the improvement in the scheme’s funding from 98 per cent to 100 per cent were “increases to benefits applied being lower than the long-term RPI and CPI assumptions and a higher number of deaths than forecast.”
Total contributions into the scheme rose to £89.7m in the year to the end of February 2016 up from £88.1m the year before, said the report. The Bank declined to comment on its improved pension arrangements, relative to corporate schemes.
Andy Haldane, the Bank’s chief economist, recently nodded to concerns about monetary policy’s effect on pension schemes, saying: “I sympathise with savers but jobs must come first.”
Mr Haldane attracted headlines earlier this year for his confession that he “could not make the remotest sense” of pensions.
Pension experts noted that the Bank’s pension scheme has not followed the Bank’s advice to institutional investors to switch to riskier assets to boost growth.
“The Bank has not fully acknowledged the impact of its policies on pension funds,” said Malcolm McLean, a senior consultant with Barnett Waddingham, the actuarial consultants. “They need to have a hard look at how QE is affecting the private sector.”
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