NAPF calls for gilt yield fix to reflect QE

Mark Hyde-Harrison, chairman of the NAPF, is calling on the government to condone such adjustment in its pre-Budget statement on December 5.

Addressing delegates in Liverpool, he said: “The most timely course of action is for the government and the Pensions Regulator to get trustees to imply an explicit uplift to gilt yields.

“What is the appropriate margin? We suggest it would be within the range of the QE impact on gilt yields. A 0.5 per cent change would lead to a 40-50 per cent change in deficits.”

Hyde-Harrison argued the deficit repayments brought about by what he described as ‘artificially’ low gilt yields would hinder economic recovery.

The proposal has been criticised by both the regulator and actuaries.

Jane Curtis, immediate past president of the Institute and Faculty of Actuaries, described it as an unwelcome return to arbitrary discount rates.

John Ball, head of UK pensions at Towers Watson, was also opposed but suggested an alternative approach.

“Too much of this debate starts from the assumption that pension funds have to take gilt yields as their starting point when calculating liabilities,” he said.

“The legislation does not force them to do this and many do not – they start with the expected return on the assets they invest in and build in a margin for prudence.

“The regulator should do more to make it clear that this is acceptable under the legislation.”