UK - Pension accounting standard FRS17 should be immediately suspended after the implementation of quantitative easing by the Bank of England, Baring Asset Management says.
Last week, the BoE cut the base rate to an historical low of 0.5% and started to pump cash into the stricken economy through buying up long-dated gilts with up to £150bn (US$209bn) of "new money".
The government said it hoped this would boost the economy, however, Barings warned it could have a potentially disastrous effect on scheme deficits.
Barings multi asset team director Toby Nangle said while the strategy should cause the cost of corporate borrowing to fall, leading to the creation of new credit - it would also hit pension scheme discount rates and cause liabilities and deficits to rise.
He said: "In our view, FRS17 should be suspended immediately with pension funds using last years' rates instead as a temporary measure. Without suspending the FRS17 accounting standard, quantitative easing will, for many UK companies, represent a new dilemma rather than a palliative."
Barings head of UK institutional business Richard Graham added: "Defined benefit pension schemes do not need to be hit again by an unintentional side effect of the Bank of England's action on money supply.
"Our suggestion to suspend FRS17 until further notice in favour of 2007's discount rates would prevent scheme deficits from widening and corporate balance sheets from weakening. Unusual times require unusual measures."
Quantitative easing was pioneered with mixed success by the Bank of Japan between 2001 and 2006 as an extreme measure to pull the country out of its so-called "lost decade".
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