Pensions devastated by low interest rates, warns Saga
Record low interest rates and rising inflation are damaging pensions and will push more pensioners into poverty, a leading expert has warned.
Record low interest rates and rising inflation are damaging pensions and will push more pensioners into poverty, a leading expert has warned.
5:40PM GMT 15 Nov 2010
Speaking at the Bank of England today, Ros Altmann, director-general of the Saga Group, warned that historically low interest rates could lead to another financial crash that would leave pension pots “decimated”.
She explained poor returns were prompting savers to take greater risks with their pensions as they approached retirement.
Savers have seen their rate of returns hit rock bottom as the Bank of England has maintained interest rates at just 0.5 per cent since March 2009.
Dr Altmann said: “Very low interest rates are having a damaging effect on pensions and pensioners.”
She warned of the dangers of rising inflation if interest rates stay too low for too long.
“Pension investors and people buying annuities are being hit by low long-term rates and pensioners suffer from low short-term rates as well, as their savings income having fallen and they cannot make that up.
“In addition, they have been hit by high inflation, so they can no longer protect the value of their capital.
“We already see signs of rising inflation and this has damaged pensioners significantly already. Their savings income has not kept up with inflation, most annuities are being purchased without any inflation protection and a continued increase in inflation will plunge more pensioners into poverty in future.”
An ageing population, with less money to spend, could depress consumption and economic growth, she added.
She called on the Government to take action, suggesting it issues special pensioner bonds that help provide additional income to pensioners caught by the loss of their savings income.
She said the Government could also consider inflation-protection products for pensioners, such as reviving the National Savings products that were recently withdrawn.
Two of the most popular state-backed investment products were withdrawn from the market earlier this year amid the Government’s austerity drive.
National Savings & Investments pulled its inflation beating and fixed interest savings certificates and cut rates on other products.
The group feared demand from consumers could place too high a burden on the taxpayer, at a time when the public finances are under unprecedented strain.
Andrew Hagger, a savings expert at personal finance website at Moneynet, said: “There seems to be no light of the tunnel, with many people having already used up a large proportion of their savings. They are going to get to a stage where there is no where else to turn.”
Robert Bullivant, chief executive of pensions broker Annuity Direct, said: “The only saving grace is the performance of the stockmarket and so anyone who has stayed in equities will see a larger fund than they did a year ago. But if they have switched to cash, they have not seen much growth. People now need to switch to cash to lock in the stockmarket gains. If you lose those gains and suffer with low interest rates, it’s a double whammy for pensioners.”