Latest interest rate cuts are a kick in the teeth for pensioners and savers
Bank of England Governor, Mark Carney’s announcement today to slash interest rates and boost QE, is another slap in the face for pensioners and savers.
The series of post-Brexit recession-busting measures include cuts to interest rates to 0.25 per cent, and a boost to Quantitative Easing by £60bn.
As I was quoted as saying today in International Adviser, International Investment, Fintech Finance and The Street’s Real Money, amongst other media, making the decision to cut interest rates for the first time in seven and a half years, and increase QE will be, to my mind, a devastating combination for millions of pensioners and savers.
Interest rates are now at their lowest level since 1694, meaning gilt yields will fall further still. Whereas now they are unfeasibly low, by decreasing more, pension deficits will rise again.
This is extremely alarming as there is already a colossal £935bn black hole in defined benefit pensions schemes.
The sheer scale of these deficits puts into question the mere survival of a large number of company pension schemes. As such, in order to continue, radical changes will be need to be made to the terms and conditions of employees’ pension schemes.
Furthermore, savings rates are at historic lows. A significant number of people were relying on income from their savings in order to top up their pensions. However, they have since discovered that monetary policy has dealt a harsh blow to their savings, as well as their pensions.
The situation is even more concerning for individuals on the cusp of retirement who wish to buy an annuity. Income from annuities is connected to gilt rates, therefore annuity rates are also at record lows.
In addition, British expat retirees could find they are even more adversely affected by the BoE’s ultra-low interest rates and QE boost. As well as being faced with the same challenges as UK-based savers and pensioners, they are also fighting a falling pound. A significant drop affects their fixed income, and in turn, the cost of living in their adoptive country becomes costlier.
Indeed, with today’s announcement by Mr Carney being such a kick in the teeth for pensioners and savers, I would strongly advise people to reassess their financial strategies as soon as possible, to try and avoid the crushing impact these policies could have on their nest eggs.