JEFF SALWAY: Pensioners bearing brunt of QE farce

The Bank of England returned to QE last October in the belief that printing more money would stimulate the economy. The £75 billion pumped into the system was topped up by another £50bn in February and while the Bank this week decided not to extend it further, few would bet against more QE later this year.

For pensioners and for company pension funds, that could spell disaster. A prime objective behind printing fresh money is to get banks to lend again to businesses and individuals. Yet one effect of QE is to deepen company pension liabilities – making it harder for those firms to create jobs, increase wages and invest in growth.

The Bank is using the money to buy gilts, pushing up their price and so forcing the yield down. The problem is gilts are used not only as the basis for annuity rates, but also in pension fund investments and in the calculation of final salary liabilities.

Some £90bn has been wiped off the value of the UK’s private sector final salary funds since the latest round of QE began last October, the National Association of Pension Funds revealed last week.

As for the direct impact on individuals, QE has helped drive annuities down by more than 25 per cent over the past four years, costing pensioners thousands of pounds in retirement income. This impact is permanent. Companies may plug their pension deficits, but with a price to pay elsewhere and one that will be passed on to employees. Similarly, millions of people who have just entered retirement or will be doing so over the next couple of years will have less money to live on for the rest of their lives, as a direct consequence of QE.

If QE was working, there would at least be some small consolation. But while in 2009 QE was credited with helping prevent a deeper recession, this time it’s more a fig leaf for a government with no clue as to how to stimulate economic growth. And the price will be paid by pensioners for years to come.

Points of interest

The Isa season, when banks and building societies seek to tempt savers into using their annual tax-free allowance by launching eye-catching new deals, is well under way. This year more savers than usual have good reason to consider transferring to a better Isa deal, with millions of pounds in accounts with rates that have been bumped up by bonuses that are set to vanish.

Bonuses are prominent again, with many of the advertised rates falling away after the first 12 months. Take advantage by all means, but move your money once the bonus goes or you’ll be letting the banks get away with it.

Other patterns are emerging. The highest rate on easy access cash Isas is, at 3.3 per cent, an improvement on the top deal last year but short of that in the previous two years. Where the offers are improving is in the fixed rate market. The top two-year fixed pays 4 per cent, up from 3.5 per cent last year, while you can get 4.3 per cent on a three-year fix, according to Defaqto.

But if you want more than that, how about stocks and shares Isas? The main feature on this page should point you in the right direction.