2007: No Country for Old Men – Coen’s
As an Independent Financial Adviser with a focus on pension planning, today’s news that the Bank of England are going to throw yet more money into the economy (some £50bn worth) is a mixed blessing. In theory the purpose of the exercise is to stimulate economic activity and help get banks lending and people spending. Yes, more of the “same old, same old” and single-track thinking. An economy built and fuelled by debt cannot really be good for anyone in the long-run. However, for those approaching or in retirement, one does begin to wonder if this is actually helping.
It is particularly unhelpful to those about to retire and are considering buying an annuity. An annuity is one of a range of options at retirement. In essence it is nothing more than an income paid for the remainder of your life in exchange for your pension fund. You can build options into the annuity – have it rise each year so that it keeps pace with inflation, have it continue payment to a spouse in the event of death. The more bells and whistles added the worse (smaller) the annuity (income) you get.
So how is this connected to quantitative easing? well there’s a very good brief interview with Roz Altmann, someone that I respect enormously and who has done a huge amount of good work to improve and explain pensions. She is interviewed briefly on the BBC today and discusses how more quantitative easing leads to lower Government Gilt yields, which leads to lower annuities, which is bad news for anyone planning to take an annuity right now. There are alternatives, but these are thin on the ground and in reality there is no certainty that delaying taking your pension (by buying an annuity) will be any better. It ought to be (because you would be older) but it might not be – depending on interest rates, gilt yields and so on.
This is precisely where a proper discussion with an Independent Financial Adviser can be vital, ensuring that your options are properly explored. Of significant value is a cash-flow plan which enables you to identify stress points and enables me to help find solutions for clients. A pension is one way of building up income for retirement, a good way (because of tax relief) but not the only way.
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