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Bank of England turns the screw on savers

  • Impact on savers and investors
  • Impact on pensions

Impact on savers and investors

The Bank of England's decision to cut interest rates will pour more anguish on savers, while boosting asset prices.

Markets are now pricing in ultra-low interest rates though to 2020.

The FTSE 100 has risen strongly on the back of the news.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

'The nightmare for savers continues, and they now face a lost decade of returns on their cash. If anything things are getting worse, not just because savings rates will fall, but because inflation is forecast to rise, eroding the buying power of cash in the bank.

Central bank policy presents a choice for savers of taking more risk, or simply accepting lower returns and having to stash away more money to meet financial goals. Given the deteriorating outlook for earnings, the latter option looks increasingly challenging.

The stock market remains the only game in town when it comes to generating an income, and today's decision reinforces that fact once more. Those moving up the risk spectrum must be willing to take a longer term view however because of the volatility of share prices.

Today's decision is a vote of no confidence in the UK economy and sets the scene for low interest rates for years to come. Savers who have been waiting for higher rates for so long must now consider whether to keep chasing the pot of gold at the end of the rainbow.

Impact on pensions

DB Schemes

Tom McPhail Head of Retirement Policy, Hargreaves Lansdown:
‘The twin measures of Quantitative Easing and the shaving of the base rate is likely to increase the liabilities of final salary schemes. Last month saw liabilities reach an all-time high, so expect more records to be broken. This will heap further pressure on the Government to ensure the promises made to members of these schemes are actually delivered.’

Far from Retirement

Tom McPhail Head of Retirement Policy, Hargreaves Lansdown:
‘Those not yet closing in on retirement could see a boost to their pension savings. The latest measures may send share prices higher, particularly of UK companies. People some way from retirement tend to be more heavily invested in shares and stand to benefit from any stockmarket rise.

Not all pension funds are created equal. The default funds of workplace pensions vary significantly, the UK stockmarket exposure for example varying from 5% to 40% depending upon the provider.,br/> Now is a timely reminder for pension savers to review where they are invested and take control of their financial future.’

Close to Retirement

Tom McPhail Head of Retirement Policy, Hargreaves Lansdown:
‘We may see insurance companies slash annuity rates again following the announcement of further Quantitative Easing and a cut to the base rate. This is bad news for the huge numbers of retirees needing a secure income in retirement. History shows us that individuals have rarely benefited from waiting for annuity rates to improve and with interest rates looking set to stay lower for longer it may still pay to buy an annuity. Retirees should always shop around to get the best rate on the market.

For those with large enough pensions, using some of the pot to buy an annuity and the remainder for the more flexible, higher risk income drawdown could be a sensible strategy.’


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Hargreaves Lansdown is equipped with a live in-house broadcast camera via the Globelynx network and has an ISDN line available for radio interviews - 0117 934 9006. To arrange an interview with a Hargreaves Lansdown spokesperson please contact the person you wish to speak to directly using the contact details above, or call Globelynx on 0207 963 7060 or email globelynx@globelynx.com.