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March 10, 2009

Quantitative easing set to hammer annuity rates

by Gill Montia

Story link: Quantitative easing set to hammer annuity rates

Pension experts are expressing alarm at the Government’s plans for quantitative easing.

They are worried about the impact of injection of up to £150 billion of newly created cash into the economy because of the impact this could have on annuities.

In return for a retiree’s pension pot, an annuity provides a regular income based on yields on government bonds or gilts.

Tomorrow, the Bank of England will hand over around £2 billion to banks and other investors in return for UK Government bonds and corporate paper.

However, news of the programme immediately impacted on gilt yields which have fallen to record lows.

Nigel Callaghan, of Bristol-base pension adviser, Hargreaves Lansdown, explains that annuity rates have already been falling substantially in the last four or five months.

He believes that the initial £75 billion of quantitative easing proposed will further damage prospects for those needing to purchase an annuity.

According to a BBC report, a £100,000 pension pot can currently purchase a joint-life annuity of up to £6,488 a year for a man and woman of 65 with average life expectancy.

The sum is nearly £400 lower than in 2008 and annuity rates look set to fall further as the economy falters.

 

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1 Comment »
  1. Things could get a lot worse if quantitate easing leads to high inflation a few years down the line as some predict. For those on a fixed income the last thing we want to see is raging inflation.

    Comment by Jonathan Mood — March 11, 2009 @ 10:04 am

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