Wednesday, 11 March 2009

Quantitative Easing - It Could Get Ugly

Quantitative Easing will it work?

March 11, 2009 is a historic day for the United Kingdom and its people! This is the day - for the first time in its history of over 300 hundred years - that the Bank of England has resorted to creating billions of pounds to pump into the system. The question on everyone`s mind now, is will this policy work or is it just one last desparate throw of the dice at a spiralling economy. One thing we do know is that QE already looks to be hurting the saver who has been feeling the pain throughout this crisis.

Gill Montia of the Banking Times:

"Pension experts are expressing alarm at the Government’s plans for quantitative easing.
They are worried about the impact of injection of up to £150 billion of newly created cash into the economy because of the impact this could have on annuities.

In return for a retiree’s pension pot, an annuity provides a regular income based on yields on government bonds or gilts.

Tomorrow, the Bank of England will hand over around £2 billion to banks and other investors in return for UK Government bonds and corporate paper.However, news of the programme immediately impacted on gilt yields which have fallen to record lows.

Nigel Callaghan, of Bristol-base pension adviser, Hargreaves Lansdown, explains that annuity rates have already been falling substantially in the last four or five months.He believes that the initial £75 billion of quantitative easing proposed will further damage prospects for those needing to purchase an annuity.

According to a BBC report, a £100,000 pension pot can currently purchase a joint-life annuity of up to £6,488 a year for a man and woman of 65 with average life expectancy.

The sum is nearly £400 lower than in 2008 and annuity rates look set to fall further as the economy falters."


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