The trouble with QE

The theory behind quantitative easing, is that it helps growth by buying government bonds and lowering interest rates. This is achieved by gilt sellers depositing money in banks to increase lending, which should boost the economy. Gilt yields fall, which should lower interest rates across the economy, helping borrowers, and stimulating corporate lending. But some say sellers of gilts often buy overseas assets, so the money does not boost the UK economy and banks are not lending on terms that are attractive to small companies so the new money is stuck in bank balance sheets.

This helps banks become stronger, but consumers get weaker. Low gilt yields do not actually result in better availability or value for small company loans. And institutions which need to hold gilts, such as pension and insurance companies, must pay more to buy their gilts, which diverts money away from other assets.  For older people this policy represents a significant transfer of wealth from people who have saved for their retirement, towards younger borrowers and banks.

Buying gilts reduces annuity rates. With record numbers of people reaching age 65 this year, there will be more annuity purchases, as the majority of people with personal pensions buy annuities, to provide a pension income for life, on retirement. Anyone retiring now will receive a permanently lower pension due to falling annuity rates as a result of QE.

It is always best to seek advice on buying an annuity, Enable Independent Financial Advisors in Bishop’s Stortford are happy to take your through your options.

Pensions in the budget?

Given that it was a well publicised maybe even over publicised budget there was no surprise that the Chancellor did little to interfere with pensions as expected. At Enable Independent Financial Advisors of Bishop’s Stortford we were keen to consider any changes to pensions.  It seemed unlikely that there would be a withdrawal of higher rate relief for pension contributions –  the Chancellor would have found it hard to respond to calls to cut pension tax relief, not least because the current system was only put in place in April 2011.

Withdrawing higher rate relief would be much more complex than it might at first appear. The way in which Defined Benefit schemes work could mean employees in such schemes could end up with a big pension and low earnings. Some public sector schemes aren’t funded, so levying a charge which is then borne by taxpayers raises no money at all. There’s also a problem with Defined Contribution schemes. Cutting tax relief could mean many put in less money. However, many schemes operate on a matched contribution basis, cutting an employee’s contributions would also cut the employer contribution. Another option being floated would be a cut in the amount that could be put into a pension scheme each year; currently this is £50,000. If you have cash that you might be considering putting into your pension Enable’s Independent Financial Advisors would be able to help you consider your options..

Which Pensions? - Pensions need an image overhaul

We've been browsing and wondering what other pension experts and providers might suggest to help solve the UK’s pension pains.

Ros Altmann, director-general of Saga, the financial services company for the over-50s, and a former pensions adviser to the Government, believes "pension" has lingering negative associations with scandal and disappointment. "'Pension' has become a negative word and it should be used only for the money paid to you by the state," she says. "The rest are your own savings for your own future and should be called something else."  This is where IFA’s can really help you to plan independently how to use your money.

She also thinks. "We need to make pensions more fun, perhaps with a lottery prize of £1m every month to get people interested," she said. "Many young people play the National Lottery each week hoping for a win, but their pound is gone. Many others have premium bonds hoping for a big prize, but they earn nothing on their money. With a pension lottery prize, people would still have their money, would get extra from tax relief or even employer contributions and would also have the potential for investment returns." The cost relative to current spending on pensions marketing would be small, she admits, but offering savers the potential of big gains today, not just in the future, could reinvigorate long-term savings.

An interesting idea but if you want to plan for using your savings, whatever you call them, to work for your future Bishop Stortfords IFA’s can help you.