TSC QE verdict may force gov’t to compensate pensioners
At long last someone within the hallowed walls of parliament has recognised that savers have become the fall guys.
Low interest rates have forced pensioners to lower their standard of living or dig into their capital. Rising gilt prices have slashed annuity rates.
The Bank of England and the government may think quantitative easing is good for the economy but it is bad for savers and bad for pensioners.
Now the Treasury select committee, a cross-party group of MPs with no political axe to grind, has asked the Bank to study more carefully the impact its policies have on household finances and to do more to justify QE. The committee warns that the creation of £325bn of new money is redistributing money from savers to borrowers.
Where would any compensation money come from? How about the £3.3bn the government expects to save by freezing pensioners’ personal allowances?
This directly challenges the governor of the Bank who has claimed that those coming up to retirement have not suffered because they have gained from the increase in the prices of gilts held in their pension funds.
The select committee’s comments also look more compassionate than those made by the Bank’s deputy governor Charlie Bean last year when he told pensioners to spend their capital. Annuity rates have fallen by around a quarter since QE started. This effectively snatches one year’s income out of every four from those retiring now.
Saga has estimated that more than 1m pensioners have retired on lower incomes in the past three years. Those working at the Bank have final salary pensions subsidised by taxpayers so are unaffected by the policy.
The select committee’s intervention has raised the prospect of pensioners affected by the policy receiving some form of compensation.
If such a decision is made the method should be simple and swift. The last thing pensioners need is a repeat of the Equitable Life saga where one committee after another examined the issue while pensioners lived in reduced circumstances or died waiting.
One question is where would any money come from? Well, how about the £3.3bn the government expects to save by freezing pensioners’ personal allowances?
When Fidelity launched its China Special Situations investment trust in 2010 my colleagues and I at the Money Mail were extremely cautious.
Our concern was that small investors would leap into the fund because it was being managed by Anthony Bolton without paying enough regard to the risks involved.
While IFAs may be familiar with the names of top fund managers, most investors may recognise perhaps two or three. Mr Bolton is one of those, based on his legendary achievements with the Fidelity Special Situations fund.
Lest you forget he turned £1000 at the outset in 1979 into £148,200 by the time he handed over the reigns in 2007 – the rate of return was about 19.5 per cent a year.
More from Tony Hazell
- Barriers against claims gave rise to scourge of CMCs
- Legacy of a ponderous and hapless regulator
- Annuities simply line pockets of insurance companies
- Feeling positive about the advice gap problem