UK - The National Association of Pension Funds (NAPF) has warned of the "nasty side-effects" quantitative easing (QE2) could have for UK pension funds, estimating that the stimulus would increase pension fund deficits by as much as £45bn (€51bn).

The organisation's outgoing chairman Lindsay Tomlinson said QE2, announced by the Bank of England (BoE) earlier this month, would equate to "torture" for schemes as the £75bn gilt buyback would suppress long-term interest rates.

Addressing the NAPF annual conference in Manchester, Tomlinson acknowledged that pension funds would benefit from a strong economy and thus understood the reasoning behind QE2.

But he said it was "strong medicine with some nasty side-effects".

"(QE2) is a key ingredient in a recipe that is destroying the value of the UK's retirement savings," he said. "It's a torture for pension funds because it artificially suppresses long-term interest rates."

He added that, because pension funds were already struggling with "gaping" deficits, they would need help in shouldering the additional £45bn.

Tomlinson warned of certain schemes falling prey to the "valuation lottery", increasing the size of any recovery programmes the Pensions Regulator (TPR) would then agree with them to address deficits.

The NAPF initially called for an urgent meeting with the regulator following QE2's announcement, which it said had taken place in the past week.

The organisation's chairman, who will step aside on Thursday to be replaced by Mark Hyde Harrison, argued TPR should take account of the stimulus's impact on pension funds.

"The regulator has a range of tools it could look to, including extending recovery periods, smoothing triennial valuation results or deferring valuation dates," he said.

The organisation predicted QE2 would see a fivefold increase in deficits compared with its positive effect on assets - which it estimated at £10bn.

It warned that the sale of UK gilts would drive up the levy each scheme would need to pay to the Pension Protection Fund.

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