Allianz predicts pain for consumers
Financial repression in the UK will have a deep and lasting long-term effect on savers and brings many challenges, Neil Dwane has claimed.
The chief investment officer, Europe, for Allianz Global Investors said the positive effect of additional quantitative easing and lower interest rates had only lasted a short time and there will be a long period of financial pain for consumers.
He said: “Financial repression is a world where monetary policy deliberately suppresses short and medium-term interest rates to encourage a greater level of risk to investors.
“It’s a world where governments bias the rules through regulation to allow them to finance themselves easily at low interest rates so they can offset any deflationary deleveraging by banks, corporates and consumers, and the risk-free rate of return becomes lost.”
As a consequence demographics, improved lifestyles and healthcare show that longevity, and its related cost, was rising so the amounts saved and the returns were increasingly both under strain.
Mr Dwane added: “Within financial repression we are experiencing deliberately lower than might-be expected returns which does not allow the necessary growth of savings capital, forcing either lower outcomes for clients or the need for greater contributions.”
Carl Lamb, managing director for Norfolk-based Almary Green, said: “The economic downturn and austerity measures are having a terrible effect on those with middle incomes and the amount they can afford to contribute to their pensions.
“Clearly we encourage our clients to maintain their existing pension contributions if at all possible. If it is not, we encourage our clients to pay in something, even if it is a lot less than before. Something is better than nothing.”