The chief executives of some of Europe’s largest pension funds have called on central banks to drop or reduce inflation targets that they believe are jeopardising the savings of millions of pensioners.
Richard Grottheim, the chief executive of AP7, the Swedish pension fund, and a former policymaker at the country’s central bank, said inflation targets have pushed interest rates so low that pension funds are struggling “to create any return at all” for their members.
The chief executive of ATP, Denmark’s largest pension fund, which has DKr800bn ($120bn) under management, added that he was “deeply worried” about monetary policy.
The Bank of Japan, the European Central Bank and four other central banks around the world have introduced low or negative interest rates in recent months in an effort to bolster economic growth and counter the threat of deflation.
As a result Larry Fink, chief executive of BlackRock, the world’s largest asset manager, said not enough attention was being given to the impact of negative rates on individuals’ saving habits.
Mr Grottheim said: “Governments are in deficit and it is hard for them to stimulate the economy.” Without fiscal stimulus the burden of a 2 per cent target has fallen too heavily on the shoulders of monetary policy and central banks, he said.
Johan Magnusson, the chief investment officer of AP4, one of Sweden’s other large pension funds, added that single number targets should be scrapped in favour of a “more flexible” framework. According to Mr Magnusson, inflation targeting creates “moral hazard issues” in which more serious problems are crowded out by an “obsession with inflation targeting”.