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The coming depression blog | June 19, 2018

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Bank of England deputy Governor Charlie Bean downplays QE effect on pensioners

Pensioners have not been hit as hard as they claim by quantitative easing (QE) and should accept that they must bear the burden of the downturn alongside working households, according to the Bank of England’s deputy Governor Charlie Bean.

The comments by Mr Bean to the Scottish Council for Development and Industry are likely to inflame pensioner groups, who have argued that QE is eroding their incomes.

Ros Altmann, director-general of Saga Group, said on Tuesday: “QE has permanently impoverished more than 1m pensioners, and thousands more annuity purchasers will receive reduced pensions every week.”

Mr Bean acknowledged that pensioner incomes have been hurt by the impact of QE, but claimed that the Bank’s £325bn money-printing policy has lifted the asset value of their portfolios and helped secure the economic recovery.

“Someone with a £100,000 pension pot, who could have expected that to yield an annual pension of a little under £7,000 three years ago, would now get just under £6,000. That is a rather substantial income loss. But it is only part of the story,” he said.

“Those pension funds will typically have been invested in a mix of bonds and equities. The rise in asset prices as a result of QE also raises the value of the pension pot, providing an offset to the fall in annuity rates.”

He added that pensioners should not expect to be immune to the downturn. While savers have been hit by record low interest rates, working households have been squeezed by a 7.5pc fall in real incomes, compared with where they would have otherwise been, as well as rising unemployment.

“Real household income declined a total of 2.5pc in the two years after output troughed, whereas in normal conditions it might have been expected to rise about 5pc in that time,” Mr Bean said.

He added: “Savers have every right to feel aggrieved at losing out; after all, they did nothing to cause the financial crisis. But neither did most of those in work, who have seen a substantial squeeze in their real incomes. And unemployment, particularly among the young, has risen. There have been few winners over the past few years.

“Treating serious medical conditions often has unwanted side-effects. But treatment is invariably better than the alternative. The immediate consequences may be unpalatable, but the sooner we can get the economy on the mend, the sooner we can return policy to more normal settings and the better it will be for all of us – savers, businesses and employees alike.”

The Bank announced another £50bn of QE this month, taking the total to £325bn since 2009, accounting for around a third of the entire stock of Government debt.

Mr Bean said there were now signs of growth, as the “squeeze on household real incomes is starting to ease”, but that “the continuing headwinds from the unwinding of excessive debt and the Government’s continuing fiscal consolidation mean that the pace of recovery is likely to remain moderate by historical standards”.


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