Quantitative easing may have indirectly increased employee pension scheme deficits, according to new estimates.
Business advisory firm Deloitte estimates that cash funding required by the FTSE 100 pension schemes has increased from £130 billion to £180 billion in the first quarter of 2009, mainly due to equity prices declining by almost ten per cent.
The Bank of England’s strategy of printing more cash and buying back gilts may have helped improve asset prices in recent weeks but also had a distorting influence on pension liabilities, the firm said.
The values of pension liabilities are often calculated by the price of gilts, which soared to their highest level in 20 years after the quantitative easing policy was announced.
Deloitte’s head of pensions in the Midlands Andrew Mewis said: “Increased deficits are likely to lead to trustees demanding greater cash contributions from the businesses that support their pension funds.”
According to Deloitte, the current high price in gilts could lead to a dramatic rise in cash contributions from pension fund trustees.
However, many market commentators expect gilt prices to fall when the government’s quantitative policy is relaxed.
Mr Mewis said: “When requesting cash contributions from their company, trustees should consider taking steps to take into account the effect of quantitative easing.
“Trustees shouldn’t bite the hand that feeds them and should only make reasonable demands on companies.
“They should also carefully consider how to apply gilt prices in calculating liabilities for cash contribution purposes, rather than blindly following past practice.
“Businesses can negotiate deals with trustees to ring fence company assets for the use of the pension scheme and there are a number of options available to companies to improve the funding position of their pension scheme using balance sheet assets.”