PENSIONS bosses have called for more flexibility in regulations to avoid a repeat of the collapse of Scottish textile group Dawson International as the sector is plagued by impact of Bank of England's stimulus programme.
The Bank of England has claimed that its quantitative easing (QE) scheme, under which it has bought £375 billion of gilts, has a neutral impact on pension schemes because the impact of a fall in Government bond yields is offset by rising equity prices.
However, the National Association of Pension Funds (NAPF) believes defined benefit (DB) pension funds, where employee benefits are based on salary history and duration of work, have seen their deficits balloon by £90bn due to the way scheme liabilities are calculated with reference to gilts.
And it warned yesterday that companies are being forced to divert cash towards plugging the hole created in their pension schemes rather than investing in their businesses.
NAPF chairman Mark Hyde-Harrison told a hearing of the Commons Treasury Committee: "Money has been coming out of the corporate sponsors into the DB to close these deficits."
He said the NAPF does not argue with QE as a policy but with the application of pensions rules that require schemes to close their funding gaps.
He said these are negating some of the benefits of QE by diverting money into pension schemes that might otherwise support economic growth.
The NAPF calculates that over the past year company contributions to pension schemes have increased from £12bn to £16bn.
Mr Hyde-Harrison wants the Government to tell the Pensions Regulator to be more "flexible" with the way it calculates scheme contributions. He said: "That would reduce the flow of money going into pension schemes that is not in the real economy and it will help companies look more credit worthy."
Mark Gull, joint head of asset and liability management at Pension Insurance Corporation, told MPs: "We need to make sure the pension funds with the weakest sponsors and the weakest covenants survive so we do not get another Dawson International that fell over because of contributions to its pension fund."
Hawick-based Dawson called in administrators in August after failing to persuade the state-backed Pension Protection Fund to take a payment and a stake in the company in exchange for its pension liabilities.
Mr Gull said that any further QE would be of "marginal benefit" given how low gilt yields already are.
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