LONDON British businesses have shown little sign of creating fewer jobs or investing less as a result of growing pension liabilities but the rules governing such funds may need to be tweaked, Bank of England deputy governor Ben Broadbent said on Monday.
Broadbent was speaking to a parliament committee which is investigating the future of ailing defined-benefit pension schemes, under which employers guarantee to pay staff a fixed percentage of their salary after retirement.
A fall in interest rates over the past 20 years has led to concern that some businesses may be unable to fund future promises without cutting other areas of spending.
Broadbent said there was little sign that companies with big pension deficits were behaving very differently to those without such shortfalls, and he said there were reasons to expect the financial position of pension funds to improve.
"Looking at the evidence we don't see – we haven't found, despite looking – great evidence that these deficits are really affecting their behaviour, whether it is over investment or over employment," he said.
Broadbent said the problem of defined-benefit pension funds' finances had been aggravated by the outperformance of bonds over equities in recent years - a trend he did not think was sustainable and would reverse over the next two decades.
Broadbent also said it was possible that the rules which govern defined-benefit pension funds could be tweaked to reduce pressure to invest in costly, lower-yielding government debt rather than equities or other higher-yielding assets.
"I do wonder if the regulation isn't herding people to a situation where ... you are being forced at the level of the system into this (lower-yielding) thing," he said.
"That is an advantage at the margin for a government issuing debt, but it may not be the right decision for society as a whole," he added.
(Reporting by David Milliken; editing by William Schomberg)