Pensioners made 'pemanently poorer' by Bank Of England move

[dutchman]

Savers on the verge of retirement are facing the prospect of becoming “permanently poorer”, as the Bank of England prepares to expand its programme of quantitative easing (QE) by £50bn.



“QE is decimating pensions and income for pensioners,” Dr Ros Altmann, director general of over-50s group Saga, told The Daily Telegraph. “If we are to create new money then we need to find more intelligent ways to spend it.”

A person about to retire will be hit by the Bank’s move because the value of annuities bought on retirement is based on returns from UK government bonds, called gilts. These investments are bought by the Bank during the easing process.

As a result, demand for gilts increases, forcing the price to move higher. This lowers the amount of interest paid out each year. Such asset purchases can also hit UK businesses directly because it increases the size of their pension liabilities, Dr Altman explained.

“Savers retiring today are being locked into a lower pension for life, becoming permanently poorer because of the drop in annuity rates,” Dr Altmann said. “QE is supposed to provide a temporary boost to the economy, but we need to find less damaging ways of providing such a boost.”

The theory behind QE is that gilt purchases release funds held by financial institutions, which they can use to lend to business to keep the economy moving, although views on its effectiveness are mixed. Dr Altmann argued that gilt purchases are an indirect way of boosting economic activity and a more direct method, such as bypassing the banks and lending directly to small businesses, would be “more intelligent”.

[dutchman]

The government is also removing the Pension Credit 'safety net' for the very poorest pensioners aged between 60 and 65 (68 in some cases) at the very time when it's needed the most.

[dutchman]

Here is Max Keiser and Stacey Herbert's take on the Telegraph story: