A European-wide pensions pressure group has urged UK and European regulators to consider the negative effect of quantitative easing on the pension provisions of millions of people.
In a 10-page paper, The Effects of Quantitative Easing on Pension Funds, PensionsEurope said the low-interest rate environment resulting from QE had also had a detrimental effect on UK and Europe pension funds.
The group, which has 24 member associations in EU member states and other European countries, urged regulators to look at correcting the interest-rate term structure that pension funds must use for valuing their liabilities in order to take the distortionary impact of QE into account.
The paper also said regulators could publish guidance on how best to adapt the asset allocation to the market conditions in the short and medium term, without harming the scheme’s long-term goals.
Regulators could give more flexibility to any “full funding of technical provisions at all times” requirements, the paper added.
Tom Beckett, chief investment officer for Psigma Investment Management, said: “Central bankers might have saved the world from economic depression but we worry that markets have borrowed much of the future’s returns.
“Prices of some assets, particularly in fixed-interest markets, have totally detached from medium-term fundamentals. Investors have been forced out of cash and been driven along the risk curve.”
PensionsEurope covers the workplace pensions of approximately 80 million European citizens and through its member associations it represents approximately €3.5trn (£2.5trn) of assets managed for future pension payments.
David Absolon, investment director for London-headquartered wealth manager Heartwood Investment Management, said: “Inflation expectations, buoyed by quantitative easing from the ECB, have been rising sharply, moving from a deflationary future to one of moderate inflation.
“The market appears to be recognising that inflation trends might be shifting and the bond market has been sensitive to that.”