Negative interest rates could ‘spell disaster’ for pensions – BoE decision due tomorrow

Pension assets can be impacted by interest changes, both negatively and positively. Interest rates generally move according to what the Bank of England does with the base rate.

Currently, the base rate is set at 0.1 percent, the lowest it has ever been.

It has been set so low for a number of reasons, with the most pressing being the economic impact of coronavirus.

Tomorrow, the Bank of England will be announcing their plans for the base rate going forward and with it already being so low and coronavirus still being an issue, there is a chance that the central bank will be forced to move it into negative territory.

This would have a profound impact on retail banks and other financial institutions who would have little choice but to alter their savings and mortgage products.

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Final salary schemes are relatively rare in the modern workplace and as such, the damage could be fairly limited.

However, those close to retirement with defined contribution pots could see their potential income plummet, as Andrew continued: “It could also spell disaster for annuities – a retirement finance product purchased with a pension pot and offers income for life (or a fixed period of time depending on that is agreed with the lender).

“Annuity rates, which are used to calculate how much will be paid to the retiree, are impacted by both interest rates and life expectancy.

“So, with people living longer and rock-bottom interest rates, those without a guaranteed annuity rate could see their value plummet.

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Andrew concluded by highlighting that savers should seek out advice where they can: “So, where does this leave consumers?

“The important thing is not to panic. Seeking independent financial advice will be key to forming a sustainable retirement plan.

“They will be able to access consumers’ financial circumstances and help you to find the very best retirement option to suit their needs.

“This way, consumers will feel more in control of their financial future and allow them to look forward to retirement.”



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