Blow for pension funds as economy boosted

Its quantitative easing (QE) programme has increased total household wealth by 16 per cent, or £600bn, by increasing the value of assets.

But it is the richest households – holding around 40 per cent of these assets – that have benefited the most, according to the Bank.

Its report into the impact of its £375bn QE programme found that pension funds with hefty shortfalls will have seen their deficits increased further.

However, the Bank said QE has helped the UK avoid an even worse economic battering.

The report comes in response to the Treasury Select Committee’s request for more detail on the effects of QE after increasing criticism of the programme because of its impact on pension annuity rates and gilt yields.

The Bank rejected fears that QE has hurting pensioners, saying that while it has lowered annuity rates, it has also increased the value of assets in pension pots.

Retirees already drawing an income from a company or personal pension will also be mostly unaffected by the programme, according to the report.

Dr Ros Altmann, director-general of Saga, said the Bank was wrong to suggest that pensioners have not lost out and said QE was causing “significant economic damage”.

“A brief examination of the facts does not support the argument that QE has pushed up asset prices by at least as much as it has depressed annuity rates,” she said.

“Investments in equity markets have been hugely volatile and the overall performance of the stock market has not risen sharply in recent years, whereas gilt yields have moved sharply lower and annuity rates have plummeted.”

The Bank has also ignored the impact of rising inflation caused by QE on pension income, according to Ms Altmann, who called for the negative impacts to be “taken more seriously”.

But the Bank admitted that the raft of defined benefit pension funds with shortfalls will be worse off from QE. Many UK pension funds are already in deficit, with an average shortfall of 33 per cent of assets in 2011.

The Bank’s strategy has also seen savers hit hard, as they have missed out on £70bn in interest payments while interest rates have been kept at a record low of 0.5 per cent since March 2009.

But it said this had been more than offset by the lower interest rates on loans and mortgages.