Pensions alert over £50bn injection

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The injection of a further £50bn into the economy will leave those approaching retirement in financial pain for the rest of their lives, pensions bodies have warned.

The Bank of England’s Monetary Policy Committee (MPC) yesterday voted to increase the quantitative easing (QE) programme – effectively printing more cash – from £275bn to £325bn despite the risks it poses to the country’s inflation rate. It held interest rates at a record low of 0.5 per cent.

The National Association of Pension Funds (NAPF) said retirees would find that annuity rates, which set the size of their pension for life, have been “squashed” by QE.

The body also warned the move would cause a “headache” for companies running final salary pensions and could lead to more schemes being shut, claiming the last hit of QE increased pension fund deficits by £45bn.

Chief executive Joanne Segars said: “Our priority has to be a stronger economy, so we understand the Bank’s case for more medicine. But this short-term stimulus is leaving pensioners and pension funds in long-term pain.

“People who are retiring now are finding that annuity rates have been squashed by QE, and that they will get a smaller pension than they expected.

“Retirees who get locked into a weak annuity will find that the Bank’s money printing leaves them out of pocket for the rest of their lives.”

Business leaders said, however, the further stimulus would “support confidence” and welcomed the decision, while the Council of Mortgage Lenders said record low interest rates have helped push the number of repossessions in the UK to the lowest level since 2007.

Some 36,200 properties were repossessed in 2011, about 4,000 fewer than had previously been forecast, although the CML did warn they are set to soar to 45,000 by the end of the year as unemployment worsens.

The QE boost comes amid mixed signs for the economy as surprisingly upbeat industry surveys for January conflicted with a downgraded growth forecast from think-tank Niesr, while economists warned of the potentially damaging impact of recent extreme weather.

The Government and the Bank have both placed much of the blame for the UK’s economic difficulties on the troubles in the eurozone, which still have no clear resolution, but Shadow Chancellor Ed Balls said the Coalition’s economic plan was “a drag on the recovery”.

The Morley and Outwood MP said: “The Bank of England is doing all it can to try and boost our flatlining economy, but it can’t perform miracles.

“Simply printing more money cannot offset the contractionary effects of George Osborne’s tax rises and spending cuts that go too far and too fast – a ‘drag’ on growth that the Governor of the Bank of England acknowledges in his letter today.”

But Prime Minister David Cameron said the move “made good sense”. Speaking from a summit in Stockholm, he said: “The combination of a tight fiscal policy with a looser monetary policy is the right answer for the UK.”

Mr Cameron was giving a speech where he warned that Britain’s economic recovery is being held back by a lack of women in the boardroom.

The Prime Minister said there was clear evidence that ending Britain’s male-dominated business culture would improve performance and did not rule out the imposition of quotas “if we cannot get there by other means”.

A Government-commissioned report last year said quotas should be imposed unless top firms acted to increase the number of women on their boards to at least one in four by 2015.