Pensions under siege as Bank of England rescue plan leaves a million savers facing poverty
More than one million pensioners have been consigned to a life of poverty because of the Bank of England’s strategy of pumping money into the economy.
Every day, 1,500 people are forced to take a retirement income which has been lowered because of the policy called Quantitative Easing, or QE.
While the wider economy may recover, this lower income is permanent, damaging a pensioner’s wealth for ever.
To add to this, thousands of
pensioners who rely on income from savings, and are already burdened
with record low interest rates, have seen their returns eaten away by
rises in the cost of living caused by QE. It means their nest eggs are
now worth 41 billion less than before QE began.
This toxic combination of high
inflation and low interest rates means many elderly people are now down
to their last few thousand pounds after a life spent saving.
Since March 2009, the Bank has pumped
325 billion into the economy, with the latest cash injection of
50 billion announced last week.
With QE, the Bank of England buys
government debt, called gilts, from banks. The theory is this will give
banks spare cash which they can lend to the rest of the economy.
As this money drips down through the
food chain, it should be passed on to consumers and small businesses in
the form of reduced borrowing costs.
More money in the economy should also
help businesses grow. But there is a damaging side-effect to this. When
the Bank buys gilts, it causes their price to soar, which lowers the
interest they pay.
Pension funds also buy gilts to pay
for annuities — which provide an income from your retirement savings. As
the yield on them falls, so does income.
With nine out of ten annuities taken, the rate you get at the start is the income you will have for life.
Since QE began, pensioners have seen
their incomes slashed by 15 per cent, stripping a male aged 65 of around
23,400 over his lifetime.
A 65-year-old man with a 100,000 pension could have taken an income of 7,093 in March 2009. Today, he would get 5,923.
Joanne Segars, chief executive of the
National Association of Pension Funds, says: ‘Our priority has to be a
stronger economy, so we understand the Bank’s case for more medicine.
But this short-term stimulus is leaving pensioners and pension funds in
long-term pain.
‘People retiring now will get a
smaller pension than they expected. 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.’
A further side-effect of QE is that it
causes the cost of living to rise. and
that more QE was unnecessary.
And there are factors which suggest QE is no longer working. For example, since last October:
Borrowing costs for banks have
soared by more than 8 per cent — and are now more than double the Bank
of England base rate of 0.5 per cent.Our national output, as measured by GDP, also fell.Average mortgage rates have climbed by up to 0.29 percentage points.The number of loans approved for homeowners has failed to increase — there were 70,000 fewer granted in 2011 than 2009.
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