Bank of England measures to boost the economy in the wake of the 2007 financial crisis harmed investment in the UK as companies diverted cash to deal with ballooning pension deficits, the central bank’s analysis has confirmed.

A study by the BoE concluded that addressing pension deficits, which widened after 2007, had led to “material reductions in UK company dividends and investment spending”.

But it said that the negative effects were “dwarfed” by the positive economic impact of the central bank’s emergency stimulus programme.

The research is the first wide-ranging analysis by the BoE on the effect of its quantitative easing programme on companies with deficits in their corporate pension schemes, which provide retirement benefits for about 11m members.

The measures implemented by the bank following the crisis included lowering long-term interest rates to stimulate spending. But this had a knock-on effect on “defined benefit” pension schemes, where liabilities tend to rise when interest rates fall, increasing costs for employers backing the schemes.

“Since 2007 many of the 6,000 DB schemes in the UK have experienced large and growing deficits,” said the paper, published on the BoE’s website.

“In aggregate, the DB deficit is estimated to have increased to around £300bn by 2015, more than 15 per cent of annual GDP,” it said.

“At the same time as deficits have risen, investment has been subdued.”

The report added that “monetary policy itself is likely to have contributed to larger pension deficits”.

Bank staff, who were given privileged access to data from the Pensions Regulator for their analysis, looked at whether companies diverted cash from investment, dividend payments and wages to address growing pension deficits.

The report, which was designed to stimulate discussion within the bank, found that companies with larger pension deficits voluntarily paid lower dividends but did not invest less.

However those that were required by the regulator to make deficit recovery contributions spent less on dividends and investment compared with other companies.

The BoE said its research implied that dividend payments by UK companies had been an average of 3 per cent per year lower since 2009 because of pension deficits, with business investment about 2.5 per cent lower over the same period.

However, the report concluded that the increased deficits had only reduced the level of GDP by about 0.1 per cent in total since 2007 — and only a portion of that could be attributed to its stimulus.

“We therefore conclude that while growing DB pension deficits have had substantial effects on the spending of some individual firms, they have only had small effects on the macroeconomy as a whole,” said the report.

Ros Altmann, former pensions minister, said the research confirmed the “damage done to pension funds by QE”.

“These damaging side effects of QE have weakened parts of corporate UK and reduced investment while also resulting in much worse pension provision for younger generations,” she said.

The CBI, which represents employers, said the research showed that “a fair balance” was needed for employers faced with conflicting demands.

“Requiring firms to meet recovery targets that may be affordable in the broad sense but limit investment ultimately disadvantages workers and puts their ability to effectively sponsor their pension scheme at risk,” it said.

The Pensions Regulator said it was pleased that the BoE’s findings suggested that its regulatory approach to DB schemes had “balanced the need to close growing deficits with the aim of allowing businesses to continue operating in a sustainable way”.

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