An outspoken Dubai-based financial company head has hit out at the Bank of England’s plans to cushion the UK from recession as he believes that it will cause “catastrophic damage” to pensions.
DeVere chief executive Nigel Green has continued his onslaught against the Bank of England, in a second statement released by his firm in less than 24 hours, after the Bank’s Governor, Mark Carney, yesterday unveiled its stimulus package including cutting interest rates to 0.25% and expanding its quantitative easing programme.
As reported yesterday, both deVere and pensions specialists AJ Bell quickly reacted to voice concerns that pension savers are set face “more pain”, with defined benefit deficits likely to soar and annuity rates plummet.
But Green has called for the Bank of England to rethink its measures, despite was he calls “noble aims” behind cutting the interest rate and the plans to pump an additional £60bn of electronic cash into the economy to buy government bonds.
“Slashing incentives for people to save, making millions of pensioners – a critical demographic for the economy – permanently poorer, and further crippling company pension funds can never be the answer to the country’s economic woes,” he said.
“A different solution – a more direct way of boosting growth – rather than forcing gilt yields lower, has to be found by the Bank of England.”
Green is concerned that slashing the rate to historic lows and extending the existing QE initiative to £435bn in total is going to unleash more “catastrophic damage” on pensions, pension funds and, potentially, the UK’s long-term sustainable economic growth. He also points that anyone recently retired or on the cusp of retirement is at risk of having the retirement income they saved severely eroded by the Bank of England’s policies as falling gilt yields will also further drive up pension deficits.
UK’s pension funding hole
He adds that it was widely reported recently that the UK’s pension funding hole has hit a record high of £935n and that this is expected to soon hit a trillion.
“Unsurprisingly, this enormous black hole will hang heavy over many company pension schemes and in order to survive at all they will need to impose radical changes to the members of their schemes,” added Green.
“And as these deficits soar, companies running such pension schemes will need to divert more and more money to make up the shortfall instead of using this money to grow their business – again this is bad news for economic growth.”