If you are at university or have a child at one in the UK you will know that lots of lecturers have been on strike. Look to our briefing this week and you will see why. The university pension scheme is deeply in deficit. Its sponsors consider this unsustainable, and as a result they want to change the way the scheme works (in a bad way at least from the point of view of the lecturers). You may be wondering who is to blame for this irritating interruption to the education of Britain's great hopes for the future. The Bank of England can help with that, since it has just admitted that it is largely responsible.
The Bank has just published a working paper on the matter of pension deficits now estimated to be £300bn, or the equivalent of 15% of the UK's GDP and their effects on corporate behaviour. In this paper, the Bank notes something that we have been telling you here ever since quantitative easing (QE) began: that "monetary policy itself is likely to have contributed to larger pension deficits". The first £200bn of the Bank's QE programme probably depressed gilt yields by around 1%, says the Bank, while low interest rates and forward guidance (the Bank has spent much of the last decade telling us not to worry about rates ever rising) have also "played a role in lowering gilt yields". That matters because "lower long-term interest rates increase the size of pension deficits".So there you have it. Cross that you or your kid might not get the first you deserve? Write to Mark Carney.
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