Savers suffering the effects of historically low interest rates should be spending rather than saving, the deputy governor of the Bank of England has suggested.
Speaking to Channel 4 news on 27 September, Charlie Bean said the Monetary Policy Committee at the Bank was trying to encourage more spending.
Bean was quoted saying: “What we’re trying to do by our policy is encourage more spending, ideally we’d like to see that in the form of more business spending but part of the mechanism that might encourage that is having more household spending so in the short term we want to see households not saving more but spending more.”
The comments sparked a strong reaction from pensions commentator Dr Ros Altmann.
Altmann accused the Bank of England of chasing short-term growth and ignoring the damage low interest rates were having on pensions.
“The economic crisis resulted from too much debt and not enough saving – but short-sighted policy is repeating the same errors by undermining savers and damaging pensions,” she said.
She said the policy ignored the perils posed by low rates to pensions.
“Pension liabilities have soared, while annuity rates have plunged, which means people’s pensions have been decimated. In an aging population, such policies are dangerously short-sighted.”
Altmann went on to criticise the Bank for removing savings incentives, saying that business needed to spend but households should be encourage to pay back debt and build up reserves to sustain them in older age, ‘not to keep spending like there is no tomorrow.’
Speaking to Channel 4 news Charlie Bean said savers shouldn’t necessarily expect to be able to live just off their income when interest rates were low and they may have to eat into their capital.
“It’s very much swings and roundabouts. At the current juncture, savers might be suffering as a result of bank rate being at low levels but there will be times in the future as there have been times in the past when they will be doing very well out of the fact that interest rates are at a relatively high level and I think that’s something savers should bear in mind.”
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