A new report has shown just how hard older generations in the UK have been hit by the economic downturn, and in particular, by the remedies prescribed by the government and the Bank of England.

The report commissioned by Saga and carried out by the Centre for Economics and Business Research (CEBR) says that a combination of low interest rates, rising prices and Quantitative Easing (QE) has hit the over 50’s harder than any other group.

Lower returns & rising inflation

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The report concludes that the Bank of England’s policy of QE has reduced the returns from pensions and savings, whilst causing inflation, hitting older generations hard.

Any pension annuity calculator will show just how far Annuity rates have fallen over the past year or so, with most of the reduction being down to lower gilt yields, one of the side effects of the Bank of England’s program of QE.

QE is also thought to cause inflation. Despite recent falls in the rate of inflation, the report concludes that over the past four years people in their 50’s and 60’s had seen their real income fall by 9%, with people aged between 65 and 74 seeing larger fall of 11%.

The Bank of England has also kept interest rates artificially low. This policy has hurt savers, many of whom rely on the interest from their savings accounts to top up their pension income.

Dr Ros Altmann, Director General of Saga said: “It is, important to seriously consider whether part of the reason for this ongoing economic weakness is the impact of monetary policy itself.”

She continued: “The Bank of England has scored an unexpected own goal with the effect of its policies on the over 50s.”
“This age group represents more than half of UK households and contributes nearly half of all domestic consumption but the toxic combination of rock-bottom interest rates, spiraling inflation and QE money-printing has put a big squeeze on their incomes, forcing many to make cutbacks.

“This change in spending habits has not just hit their living standards it has also sucked almost £25 billion out of the economy, reduced the Treasury’s tax take and may have inadvertently helped tip us into recession.”

Bank of England response

Responding, the Bank of England dismissed the report as “nonsense” and has consistently argued that its policies have averted an even worse economic downturn.

Furthermore, the Bank believes that whilst Annuity rates may have suffered, the value of people’s pensions has actually been improved due to the rise in value of gilts, corporate bonds and in some cases equities.

The Bank also argued that their policies have protected jobs, which in turn provides a boost to the economy.

Who is right?

Falling Annuity rates, low interest rates and for a period, relatively high inflation, are all indisputable facts. Their affects have also impacted on the lives of many, particularly those nearing, or indeed, at, retirement.

We would also argue, based on the evidence we have seen from our clients, that any rise in pension values, has not been enough to offset lower Annuity rates.
The Bank of England’s case is harder to prove as no one knows what would have happened without the Quantitative Easing program coupled with low interest rates.

Whilst the debate is likely to continue for many months and perhaps, even years to come, only you will know how the economic downturn and the remedies applied by the Bank of England, as well as the government, have affected your own finances.

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk