Bank Of England Ignores Inflation As Savers And Pension Funds Are Hung Out To Dry
by Dr. Ros Altmann
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More Quantitative Easing will be a “Titanic Disaster”
Call for higher ISA allowances
Dr. Ros Altmann, Saga Director General, highlights the major problems for pension funds, pensioners and savers, as the Bank of England continues to hold interest rates and inflation soars. “More Quantitative Easing will worsen inflation and lower long-term interest rates, which will worsen pension fund deficits and lower consumer confidence, thus actually damaging, rather than stimulating sustainable growth, warns Altmann:
“The Bank of England is considering another round of Quantitative Easing (so-called QE2) – which is really just printing money (albeit electronically). This would be a Titanic disaster.
Buying gilts of corporate bonds is not what we need to revive the economy. It may be a short-term boost for bond traders and markets, but it risks a loss of confidence in the Bank of England’s policymaking, which ultimately will be damaging.
“The last round of QE was supposed to stimulate UK growth and fight deflation, but instead it boosted prices, bank bonuses and borrowers’ balance sheets. It actually created asset bubbles and inflation, not sustainable growth. It aggravated the pensions crisis by forcing long-term interest rates down and inflation up, consequently, pension fund liabilities and deficits have soared, more employers have closed their schemes and British businesses are being forced to find more money to shore up their pension deficits, rather than creating jobs.
“Falling bond yields also make annuities more expensive, giving new retirees much less pension income for their money, leaving them permanently poorer in retirement. And most pensioners buy fixed annuities which fall in real terms as inflation rises, so QE has aggravated pensioner poverty.
“Has The Bank of England abandoned its core inflation-fighting remit?
“If QE2 does proceed, instead of buying gilts or corporate bonds, the Bank should lend new money directly to small companies – the lifeblood of our economy – via a ‘social bank’ to help create jobs. Government bond yields are already too low and unlike large corporate which are flush with cash, small firms are being starved of credit. Relying on broken universal banks to recycle the proceeds of asset sales has not worked under the first round of QE and will not work now.
“As low interest rates erode the value of people’s hard earned savings, I would also like to see the Chancellor allowing higher ISA limits, so that at least what meagre interest people do get on their savings will not be taxed as well.
“QE2 will damage pensions, impoverish pensioners and ultimately risk another crash. Inflation depletes spending power. It does not create growth. This inflation has undermined confidence and caused consumers to retrench, which has actually weakened the economy. The authorities must take heed of these dangers before it’s too late.”
NOTES FOR EDITORS
- Bank of England’s website home page promises that the Bank sets interest rates to control inflation and protect the value of your money. Yet, since 2007 alone, inflation has risen by nearly 15% and interest rates have been near zero, so savers and those living on fixed incomes have actually seen the value of their money sharply eroded.
- A higher ISA allowance for savers, particularly the over 50s who may be relying on savings for their retirement, would be the equivalent of an interest rate increase of between 1% and 3% on typical fixed term market ISAs. The Treasury could help savers in this way, at no initial cost and should urgently consider such moves.