Imperial Party forum

thomas davison

Pensions under siege as Bank of England rescue plan leaves a million savers facing povertyBy James Coney

Last updated at 12:37 AM on 15th February 2012

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.

JAMES CONEY: A lifetime's burden on savers and pensioners to get economy back on track

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. By the Bank�s own estimate, inflation, as measured by the consumer prices index, may be as much as 2.4 percentage points higher than normal.

Most pensioners buy a fixed annuity, which pays a flat rate every month. This high inflation means their pension will buy less every month. Even with yesterday�s sharp drop in inflation, savers cannot earn enough interest to stop their money falling in value.

With inflation, as measured by the consumer prices index, at 3.6 per cent, a basic-rate taxpayer has to earn 4.5 per cent to protect their money, a higher-rate taxpayer 6 per cent, and a 50 per cent top-rate taxpayer 7.2 per cent.

But to earn this real rate of return, savers would have to tie their money up for five years.

And there are no easy-access accounts which will allow even a non-taxpayer to protect their money.

The Bank of England argues those approaching retirement have benefited from growth in their pension fund, as they will largely have their money invested in gilts.

The typical fund of someone five years away from retirement has increased by 41 per cent since QE began.

But only three-quarters of a typical pension fund will be invested in gilts and bonds (company debt). And not all pension funds automatically move savers into gilts as retirement looms. Around 1.8 million company pensions won�t have benefited at all.

Also, some economists believe the Bank has got its inflation predictions wrong.

Simon Ward, chief economist from fund managers Henderson, believes inflation will remain high through 2012 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

As the BOE is a private company,I've never understood how Mervyn King is eligible for a gold plated PUBLIC PENSION.

Inflation is just another form of taxation. Don't expect interest rates to ever go up because it would bankrupt the government.

How can a private company, B.O.E have the power to implement this QE theft/insanity it can only all end in tears, and it certainly has for so many pensioners and savers. When the �500 billion that the Bank will eventually print actually works its way into the wider economy we shall also see hyperinflation. The only people not crying then will be public sector employees (like Mervyn King!) with their inflation-proofed pensions and anyone in the private sector lucky enough to have a defined benefit scheme. The big question is not what is happening or what will happen, but what can the unfortunate folk - the bulk of the population I am guessing - without index linking on their savings and pensions do about it?

WHEN INJUSTICE BECOMES LAW RESISTANCE BECOMES YOUR DUTY