Troubling times ahead for UK bonds, pensioners and savers
The next Bank of England governor’s appearance before the Treasury Select Committee yesterday provides further evidence that pensioners, and those nearing retirement, might need to re-evaluate their investment plans – after revealing that he believed “flexible inflation targeting” was likely to be the “best” policy.
During his three-hour grilling, he hinted that inflation could be allowed to stray from its target and this is disconcerting for workers on the cusp of retirement and current retirees, particularly as it has been above target for much of the past six years.
Higher inflation would be another hammer blow to the returns offered by government bonds, known as gilts, an asset class which the over 50s have, traditionally, had great exposure to as they have been perceived as a ‘safe haven’.
With the incoming governor of the BoE suggesting that he favours ‘flexible’ inflation targets, the case is strengthened for people nearing retirement or those currently retired to consider higher risk/higher returns investments, as an investment portfolio made up almost exclusively of gilts is increasingly unlikely to produce the yields necessary to fund a decent retirement.
In addition, pensioners and savers, in general, not only those holdingUKbonds, will be hit by a rise in inflation as the higher cost of living eats into fixed incomes.
As such, with rising inflation becoming ever more probable, the over 50’s might need to seek advice on inflation-busting investments to help mitigate its adverse effects.
Nigel Green deVere Group
Blog written 8th February