UK retirement savers could be in for another bleak year as the Bank of England mulls pumping billions more in to the banks through another round of quantitative easing (QE).
City analysts and economists are expecting Chancellor George Osborne to give the green light to a £50 billion cash injection this month, possibly followed by £25 billion more in the autumn.
Prime MInister David Cameron has already told retirement savers and pensioners to put up and shut up with their share of financial pain as the economy rebalances – and they can expect to feel more stress in the coming months.
QE undermines the value of pensions because the strategy is an alternative to lowering interest rates – and has a similar effect on the economy.
The Bank cannot really take interest rates lower. 0% is not a rate, and all that’s left is a 0.25% cut to 0.25%.
QE brings the same result by stoking the economy with more money to fuel borrowing for homes and businesses.
The downside for savers and pensioners is QE pulls down interest rates, reducing returns on annuities and money in bonds, savings and investments.
If the Chancellor doesn’t agree to more QE, he risks seeing the economy slide back in to recession.
He cannot entertain the notion – especially when the economic lights are just coming on again around the world with falling inflation and more jobs.
Sheltering from QE is not a real option – except for expats and international workers who live permanently outside the UK who can consider a qualifying recognised overseas pension (QROPS).
A QROPS is not a magic cure for retirement savers, but does offer flexible investment options away from the UK that are not available to onshore pension savers.