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Pension Planning, Bank of England Style

The Bank of England's is not your typical pension fund...

THE PAST few years have been extremely worrying for pensioners and those approaching retirement in the private sector, writes Simon Rose of Save Our Savers

The Bank of England's policy of depressing interest rates and gilt yields has resulted in a sharp drop in the value of annuities while the National Association of Pension Funds believes that QE has cost pension funds £270 billion.

Various officials at the Bank of England have scoffed at the concerns of the pension industry, saying that the assets of pension funds have been doing very nicely, thank you. And in the case of the Bank of England's own pension fund, that would certainly seem to be true. But then it is a very untypical pension fund.

In 2007, the average pension fund had over half of its portfolio invested in equities. Not so, the Bank's fund, which sold its entire holding of UK equities late that year, coincidentally avoiding a precipitous crash in the stock market as the financial crisis hit. The fund moved heavily into index-linked gilts, which protect against rises in inflation. From a proportion of 25.6% in index-linked securities in Feb 2007, it rose in successive years to 70.7%, 88.2% and 94.7% with a figure of 94.8% in February 2011, the last period for which we have details.

According to a report from NYB Mellon earlier this year, UK pension funds in general have almost tripled holdings of index-linked gilts to 15% over 10 years "reflecting the heightened concern over the future path of inflation". The Bank of England has never revealed why, instead of the industry average of 15%, their pension fund holds an extraordinary 94.7% in index-linked securities and have no equities whatsoever, when the average holding is 45%.

Each year in its Annual Report, the Bank of England publishes details of its top executives' pensions. In February 2005, the then commoner Mervyn King had a pension pot of £2.7 million. It rose to £5.4 million in February 2009 at which point contributions ceased, meaning it is no longer shown in the Report.

Deputy govenor Charlie Bean saw his pension pot rise from £1.3 million in February 2008 to £2.5 million in February 2011, helped by two consecutive rises of half a million pounds. For the year to February 2012, however – figure revealed just last night – it has grown by over a million pounds to stand at £3.6 million.

The other deputy governor, Paul Tucker, saw his pension pot increase from £2.3 million in February 2009 to £5.0 million in February of this year, a rise of £1.3 million in the past year alone.

According to the Telegraph, "Bank sources said the largest part of the increase was due to the sharp fall in gilt yields." Really?

The graph below shows the leading indices of index-linked instruments. In three years, Bean's pension pot has grown by 118% and Tuckers by 148%. Both rises appear to be far in excess of the gains in gilts. Given that they are public servants and that their pension funds are paid by the taxpayer, surely we deserve to be given more details of why the pension pots of the Bank's senior officials have risen so much in the past few years. It is not good enough merely to show the figures as a footnote in the Annual Report.

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Founded in 2010 as a reaction to the Bank of England's record low interest rates, Save Our Savers campaigns to get a better deal for British savers. Its stated aim is to support and encourage a savings culture in the United Kingdom as the best way to achieve long-term economic prosperity, arguing that "a country without savings is a country without a future".

See the full archive of Save Our Savers articles.

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