The latest round of quantitative easing has been criticised by SAGA Directory-general and former government adviser Ros Altmann. She called the move a ‘titanic disaster’ for retirees as it is likely to mean annuity rates will fall and pension fund values will shrink further. QE has been introduced to inject money into the economy which in turn is supposed help generate economic growth. However QE can have the knock on affect of increasing inflation as well as pushing down annuity rates because the price of gilts (government bonds) increases as they become more popular.
And it is not just DC pension scheme members that are affected by QE, it also hits those companies who are paying into defined benefit (final salary) pension schemes. Altmann says that “…more employers have closed their schemes and British businesses are being forced to find more money to shore up their pension deficits rather than creating jobs.” She went onto say that QE will ‘aggravate’ pensioner poverty.
A fall in retirement income, either from a smaller fund and/or a lower annuity rate could not have come at worse time for retirees. This is because prices are rising, especially for essentials such as food and fuel, meaning households will have to cut back even further on spending. We have already seen how some pensioners are having to make the choice between ‘heating or eating’ such is the pressure on their personal finances. This pressure will only intensify as we come up to the winter months when energy consumption increases. Retirees who have savings will also be seeing an increasingly minimal return as interest rates remain a the record low of 0.5%. So although QE is designed to get the wider economy moving and help generate new jobs, those coming to the end of their career who are about to retire may not be so positive about the move.
