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Friday, 10 February 2012

Ros Altmann on QE - she has a point!


Saga has accused the Government of 'robbing people of their pension' through the Bank of England's programme of quantitative easing.

Director general Ros Altmann says that if the Government had announced that, in order to bail out the banks and help those who had borrowed too much, it had decided to raid people's pensions, there would be uproar.

But she says that by calling it 'quantitative easing', it has got away with stealing older people's futures.

She says: "QE is causing dreadful damage to pensions, pensioners and annuities, 
and the impact is long-lasting.

"Of course, there are some lucky ones, with final salary pensions who are better off, but that is by far the minority.

"I believe it is important for everyone to understand the almost impossible position facing older people around retirement today.

"They are suffering in silence so far, but for how much longer?

"There is simply nowhere for them to turn - they were led to believe that low rates and QE would be 'temporary' policies, but there is no end in sight to this massive inter-generational transfer."

Altmann continues: "Why is the Bank ignoring these terrible effects on pensioners?

"Is it because officials don't realise how many people are being hit and these older people do not have a powerful voice?

"Is it because most of those making monetary policy decisions have final salary pensions and, therefore, are protected from the impact of their own policies?

"Most of those who have saved in a pension scheme, other than a final salary-type arrangement, will need to buy a pension income from their pension savings on retirement.

"They are suddenly finding that the Bank of England has stacked all the cards against them and there is often nothing they can do to protect themselves."

Story provided by StockMarketWire.com

PensionsManager comment:

Ros does not mention the impact of low interest rates on pensioners with modest savings on deposit.

You could argue that the golden age of retirement - those that gained from property wealth increases in the 70s, 80s and 90s, and enjoyed final salary schemes with often generous RPI index linking, and tax free cash sums, are now paying the price for that with low interest rates on their nest eggs.

The point made well by Ros is that ordinary private sector employees are now reaching retirement (sometimes earlier than expected due to redundancy) and finding their defined contribution retirement pots are totally inadequate. 

They would normally be expected to shy away from the equity market as they approach retirement (lifestyle investing approach) and so any equity boost caused by QE is lost to them. They may well have bonds in their porfolios that have risen in value to compensate, but many are in managed funds or diversified growth funds trying to make up from stockmarket losses in 2008-9.

Purchasing an annuity at such low rates caused by continued Gilt purchase is a real kick in the teeth. No wonder so many keep on working if they can and what does that do for youngsters that need work? A ridiculous state of affairs.

If interest rates begin to rise and pension deficits fall this will be a boost for many companies. This will help the economy and cause more money to be available for investing in growth. But beware - many schemes will swap this benefit with investment banks in return for a smoother funding path now. Is that wise?

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