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Annuity warning over side effects of QE

Annuity warning over side effects of QE

Category: Annuities

Updated: 12/12/2017
First Published: 14/02/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Pension experts have warned retirees they face an even trickier task to secure a decent retirement income after the Bank of England voted to pump an additional £50 billion into the UK economy by way of quantitative easing.

The National Association of Pension Funds (NAPF) and Saga are amongst those to warn the Bank's latest money printing operation will deal yet another blow to pensioners.

With gilt yields being one of the major influences of annuity rates, and quantitative easing involving the bank buying more gilts, yields are pushed lower and annuity rates drop lower too.

According to Dr Ros Altmann, director-general of Saga, record numbers of people are set to reach age 65 in 2012, with many likely to need to buy an annuity.

"Around half a million annuities are sold each year and, since 2008, annuity rates have fallen by about 25%, most of which is due to the effect of quantitative easing," she added.

"That means over a million pensioners will be permanently poorer for the rest of their lives, as they have bought an annuity at rates that have been artificially depressed by the Bank of England.

"Annuity rates have plunged, meaning the people's hard-earned pension savings are not giving them the pension income they could have achieved even just a few months ago."

The warning is one which is echoed by Joanne Segars, chief executive of the NAPF, who acknowledges the priority has to be to boost the economy, but adds that the short-term stimulus of quantitative easing is leaving pensioners in long-term pain.

"People who are retiring now are finding that annuity rates have been squashed by quantitative easing, and that they will get a smaller pension than they expected," she added.

"Retirees who get locked into a weak annuity will find that the Bank's money printing leaves them out of pocket for the rest of their lives."

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