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UK Pensions face ‘Death Spiral’

The Bank of England’s policy of quantitative easing has done “irreparable damage” to Britain’s final salary pension schemes, a leading economist has said.

While the Bank has made no extension to its QE programme, it’s policy of forcing down long-term interest rates has caused huge problems for the pension schemes of many firms, according to a UK specialist for the over-50s’ group.

Pension deficits at FTSE 100 firms have more than doubled in the last year alone, despite companies pumping millions into their schemes to repair their pension shortfalls.

“This is turning into a ‘death spiral’”, the lower gilt yields fall, the worse pension deficits become. The worse pension deficits become, the more trustees will feel the need to ‘de-risk’. This often means buying more gilts which itself means worse deficits because trustees are competing with the Bank of England, which is also trying to buy gilts due to QE.

Firms are left trying to find more money to plug pension deficits, causing funds to be diverted from creating jobs and expanding operations. Worryingly too, companies trying to borrow money to expand, or meet a pension recovery plan, are finding the banks increasingly unwilling to lend because of the pension deficit.

The question is “Why would you leave your pension in the UK, who knows what this will be worth when you retire?”

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written by:

McKinley Plowman