Quantative Easing and falling retirement income

2011 has proved to be a volatile economic year and a testament to this manifested itself in the second introduction of Quantative Easing (sometimes referred to as QE2) in early October 2011 by the Bank of England. There are many proposed benefits for this additional cash flow, including the proposed additional funding trying to be established in this round or ‘Easing’ for small to medium enterprises (SME’s).

However, there are some other negative effects. This QE2 introduction has also seen annuity rates fall in the last week or so. This is because the price to providers to purchase Gilts (Government Stock), the financial instrument usually used to purchase an annuity and provides it with the guarantee of income, have increased. This means that annuity providers are now paying more capital to buy the same income. Therefore, as an example, the subsequent pension income provided from the capital deployed has fallen.

Those considering the purchase of pension/ retirement benefits in late 2011 have been concerned by this development and the subsequent annuity rates fall in recent weeks, along with the levels of income that can be achieved from alternative income producing plans, such as the use of the Income Drawdown proposition. This latter Income Drawdown option has also seen a change in legislation this year, reducing the maximum draw that can be taken from a new plan from around 120% of the level of an annuity purchase (GAD rate) to 100% at a new review,. As an example, for older existing Drawdown plans (many have been established for years) the mandatory five year review (new review limit is three years) can see incomes fall significantly from previous allowed maximums. This is a good example of why these types of plans should be reviewed annually.

For annuities, using our services to review the market to seek the best annuity rates (including impaired life/smokers annuity terms) using the Open Market Option (OMO) available under most pension plans (PPP/Section 32/SIPP/SSAS) can make a significant and beneficial difference in the final income that can be achieved.

Talk to us about the full range of options that are available and the income terms that can be achieved. Our website www.churchouse.com features more information on the Retirement Options available here and indicate the variety that each client needs to consider with our guidance and advice. Each client is different and therefore, this blog should not be seen and used as individual independent (IFA) financial advice.

We look forward to helping you with our retirement planning.

Keith Churchouse FPFS

Director

Chartered Financial Planner, ISO22222 Certified Fianncial Planner

Certified Financial Planner

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