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Home > Opinion > Tony Hazell

Who says QE doesn’t hurt pensioners?

Research suggests annuity rates fell 23 times in the past year, while the Bank of England’s defense ignores the effects of inflation on fixed incomes.

By Tony Hazell | Published Sep 19, 2012 | comments

Retirement used to be anticipated with enthusiasm by most people. It offered a chance to indulge in leisure pursuits that a busy working life might not allow, such as a round of golf, or a spot of travelling.

But, increasingly, people are regarding retirement with trepidation. It’s not that they want to continue working; it’s just that they don’t have a clue how they will make ends meet.

It’s a searing indictment of both this and the previous government as well as economic planners that they have shown so little regard for those who save.

It’s a searing indictment of both this and the previous government as well as economic planners that they have shown so little regard for those who save.

This must be partly put down to their own cushy circumstances. It’s easy to step aside and take an objective view of quantitative easing when the taxpayer is going to stump up for your pension.

Now a report from Saga Foundation estimates that fiscal and monetary policies will leave pensioners £11.5bn out of pocket by the end of 2014. The report, compiled by the Centre for Economics and Business Research, concludes that the average pensioner will be £1318 worse off.

This follows research produced by Tom McPhail of Hargreaves Lansdown showing that annuity rates fell 23 times between July 1 and August 22.

The latest figures from Annuity Bureau show that Aviva now pays £5260 a year on a £100,000 single life level annuity to a 60-year-old man. This is a £30 fall in a month. And, mind you, this is the best annuity on offer.

Second-place Legal & General has cuts its payment by £76 a year. Of course £1.50 a week won’t seem much to a politician or Bank of England Governor. But for an ordinary pensioner, every penny counts.

A joint life annuity escalating by 3 per cent a year and guaranteed for five years starts at £3174 for a man aged 65 and woman 62. This compares with £4746 five years ago says Annuity Bureau.

Yet, while I was on my summer sojourn, I noticed the Bank of England again asserted that QE has not hurt pensioners.

It may not have done if they could all afford the sort of advice available to Bank of England governors. But the assertions ignore the effects of inflation on those on fixed incomes – and they ignore the fact that those tied in to low fixed incomes will now be stuck with them for the rest of their lives.

They ignore the fact that age-related tax allowances are being scrapped, that savings credit has been reduced, winter fuel payments cut and the state pension linked to the consumer prices index rather than the retail prices index.

Fixed annuity rates have fallen around 25 per cent in the five years since the credit crunch started.

Against this the FTSE 100 is around 800 points lower than it was five years ago. Given all that has happened it would be a canny investor indeed who managed to secure a similar retirement income to that they would have managed in 2007. Yet that is what the Bank of England has implied is possible.

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