Low interest rates are damaging long term growth and hitting pensioner incomes, the director of Saga Group has said.
Dr Ros Altmann who is director-general of the firm, which provides insurance and financial services, was giving evidence to the EU’s Financial Stability Board Standing Committee on the impact low interest rates are having on pensions.
The Bank of England has kept the Bank Rate at 0.5 per cent for 20 consecutive months and Altman is warning that rates are driving annuity (retirement income) rates lower and impacted on the savings income some pensioners relied on.
Altmann presented to the committee a summary of the dangers posed by a low Bank Rate, which also included a warning that a one per cent fall in rates equated to a 20 per cent hike in the liabilities for a final salary pension scheme, worsening scheme’s deficits.
Saga said Altmann would argue that a cut in interest rates is like a cut in the state pension, since it takes away income pensioners rely on.
“This is potentially economically damaging, as pensioners will have less money to spend, and, with an ageing population, this could depress consumption and economic growth,” she said.
Saga said those retiring now and being paid an annuity were receiving a much lower rate because of the low interest rates and if rates were to stay low pensioners should receive protection.
The group is calling for the government to issue longevity bonds to help pension funds, consider issuing special pensioner bonds to help provide additional income to pensioners losing out on savings income and creating inflation-protection products.
© Fair Investment Company Ltd