There are currently 12.85 million pensioners in Britain, many of whom are being greatly affected by the Bank of England’s attempts to kick start the economy.  The record low level of interest rates, the historically low level of annuity rates and the increasing trend in inflation are all factors which have reduced incomes and eroded capital and reduced retirement incomes.

The Bank of England’s own figures estimate that low interest rates have cost savers £70 billion in interest since 2008. Now, the most recent government attempts at cost saving have seen the cutting of the winter fuel allowance and the introduction of the notorious “Granny Tax”, which in essence is the freezing or abolishment of the Age Related tax allowance.

One of the main methods that the Bank of England have attempted to revive the economy since 2008 is via Quantitative Easing.  This is where extra cash is pumped into the economy to encourage greater spending.  This has, to be fair, helped stimulate some growth, but at the same time, whenever people spend more, increasing demand, this in turn helps increase process and ultimately the rate of inflation.

The use of Quantitative Easing has resulted in the Government buying a number of Gilts, which in turn raises their price. A Gilt is essentially a loan made to the Government when it needs to raise capital. The increase in Gilt prices has reduced their yields and it is these yields that determine rates for annuities. When they are lower, annuity rates are lower so the income which pensioners can secure from their pension funds is lower.

The other way in which legislation has affected retirement income is the reduction in the maximum level that can be accessed under a normal pension drawdown contract. The Government recently reduced the maximum levels of income allowable in any year from 120% to 100% of Government Actuary’s Department (GAD) rates. This has affected an estimated 325,000 income drawdown pensioners.

The total impact of all these policies has been outlined in a recent study by the Centre for Economics and Business Research has predicted that the combination of the above Fiscal and Monetary measures will cost the average pensioner £451 per annum by 2013-14.

Please contact us for more advice on annuities.