More bad news is brewing for retirement savers as the Bank of England readies to launch another round of quantitive easing and interest rate cuts to ward off the risk of another slump.
After warnings from the International Monetary Fund that Britain needs growth as well as austerity, the bank is considering an extra £50 billion of quantitive easing – and even slicing the official interest rate in half to a new low of 0.25%.
With growth at home slipping back towards recession and other major economies fairing just as badly in Europe, the Bank of England wants to stimulate jobs and output.
Although quantitive easing and rate cuts may be good for business, they are disastrous for retirement savers.
Quantitive easing involves the Bank buying bonds, which pushes down yields on gilts.
Gilt yields determine annuity rates, which are steadily dropping, and reduces retirement income for investors who buy annuities with their pension funds.
For savers, another official interest rate cut would worsen already meagre returns from bank and building society accounts. Few have a return that beats the combined effects of tax and inflation, and cutting the rate would cull that number down to a handful.
Retirement savers in the UK have little option other than to go with the flow – but expats may be able to withstand the effects of inflation and UK quantitive easing by switching their pension funds in to a Qualifying Recognised Overseas Pension (QROPS)
A QROPS is outside of the UK pension regime with more flexible investment and currency options. The schemes are also tax effective and place the funds outside UK inheritance tax rules.
The pensions are open to former British residents living permanently overseas or international workers with UK pension rights.