Steve Webb, the pensions minister was forced to defend the government’s policy of quantitative easing in response to MP’s claims that it penalises savers and pensioners. The Treasury Select Committee this week discussed the affect on pensions of the government’s £325 billion QE policy, advising ministers on how to help dampen the impact on retirees. QE is effectively printing money which is then used to buy up government bonds, which in turn, heightens the price of these bonds. The consequence of the price of bonds rising is that the yield (the rate of interest) is lower, meaning insurers have less money to offer in the form of annuity rates.
Steve Webb, the minister responsible for pension policy rejected the correlation between the policy of quantitative easing and the fall in annuity rates. He told the BBC in an interview that…“…annuity rates have been falling year after year after year. There is no clear evidence that QE has made a difference to that. Annuity rates are falling partly because people are living longer.” However, there are several members of the Bank of England’s MPC who disagree with this analysis. Charlie Bean from the MPC told a committee of MP’s earlier this year that… “…annuity rates might have been driven down by asset purchases”. David Miles, another member of the MPC conceded back in March that QE had inevitably left pensioners…”…worse off.”
Ros Altmann, a seasoned campaigner for the over 50′s and a critic of QE says that the government must acknowledge the damage that can been committed by their policy of printing money. She argues that the government should raise the limit on cash ISA’s as well as re-examining the rules relating to income drawdown.