NAPF urges government to boost long-dated and index-linked gilt issuance

The trade body's pre-budget report submission said such a move would reduce pension fund deficits and reduce the scale of pension fund liabilities on employer balance sheets.

It said members of defined contribution schemes would also benefit - especially those at retirement because of increased annuity rates.

The NAPF said, given low yields at the long-end of the yield curve, skewing issuance towards longer maturities would also help give the government access to a cheap source of finance - and help accelerate the economic recovery.

It said there was a "strong, and on-going demand" from pension schemes and insurance companies for long-dated and index-linked gilts so they can better match their liabilities - noting this would remain so for some time to come.

Last week, the NAPF's annual survey revealed 82% of pension funds believed this action would be the single most effective way government could help them continue to provide defined benefit pensions for their staff (Global Pensions, November 27, 2009).

However, despite the NAPF's call for more issuance and its belief scheme demand is high, the Bank of England told delegates at last month's PP Show - organised by GP's sister magazine Professional Pensions - there wasn't much scheme participation in index-linked gilt auctions as the bonds were often seen as too expensive (Global Pensions, November 19, 2009).

It said it would like to see more uptake of index linked gilts by institutional investors - and urged them to put in bids for the paper, even if they were low, in order to register their interest in the asset type.