Bank's salvage plan cuts the value of pensions

Published on Wednesday 11 March 2009 20:16

PENSIONERS could lose out on thousands of pounds in retirement income as a result of the Bank of England's quantitative easing measures, experts have warned.

Many retirees intending to buy an annuity to provide a regular income in retirement will receive a lower income because of the 75 billion cash injection. Much of the 75 billion is to be invested in gilts (government bonds), driving up the cost of gilts and sending the rate of return from them plummeting. But insurers rely heavily on those returns to fund annuities, meaning that annuity rates are also falling.

Rates have already dropped by 8 per cent since last July, but with the fall in yields likely to continue, most insurers will be forced to further reduce their annuity rates, said Nigel Callaghan of IFA Hargreaves Lansdown.

As a result, a 65-year old man with a 100,000 pension fund would now get an annual income in retirement of 785 a year less than in July last year.