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31 October 2012 last updated |
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Annuity rates could remain at current with no more QE |
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Deputy governor of the Bank of England Charlie Bean has indicated he has doubts about how effect Quantitative Easing (QE) will be and a change in strategy would benefit annuity rates in the future.
QE involves the injection of money into the economy by the Bank of England (BoE) by buying government bonds and gilts which currently stands at £375 billion. This increases the price of the gilt thereby reducing the yield and since annuity rates are based on the 15-year gilt yields a fall would mean lower annuities for pensioners in the future.
The expectation is that the BoE will announce another £50 billion of QE in November and threaten annuity rates which are already likely to decrease for males due to the new Unisex rates. Annuities have been decreasing in anticipation of changes when the EU Gender Directive is implemented from 21 December 2012 and further quantitative easing would certainly mean more volatility.
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Quantitative easing unlikely to happen
The Monetary Policy Committee (MPC) determines if QE is necessary and the last time it was used was in July 2012 with £50 billion used to purchase government gilts. There are nine members of the committee and two voted against QE at this time.
Mr Bean said in a recent speech that quantitative easing was a useful for reducing gilt yields and the cost of borrowing but not effective in terms of economic value. He said that gilt yields could be pushed down further using QE but this may simply act to delay a recovery in the economy with unprofitable firms continuing when their demise would be that resources would shift to expanding sectors and firms.
There was also an unexpected improvement in Gross Domestic Product (GDP) with growth of 1.0% the best result in the last five years and brings to an end the UK's double dip recession. This could be down to the Olympics, however, for pensioners retiring now if QE does not happen it will provide stability to the pension annuity market that is volatile and falling due the to the introduction of Unisex rates.
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Age |
Single |
Joint |
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55 |
£6,361 |
£5,898 |
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60 |
£6,842 |
£6,244 |
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65 |
£7,474 |
£6,843 |
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70 |
£8,405 |
£7,660 |
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Unisex rates and joint life basis |
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