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Your support makes all the difference.Q. What does quantitative easing have to do with the value of my pension?
More than you realise. People save for retirement by putting money into a pension fund. When you retire, you usually have to use that fund to buy a pension income using an annuity – basically a promise from an insurance company to pay you a set amount of pension each year for the rest of your life.
Q. So what?
Annuity rates rise and fall for various reasons, but one of the most important is gilt yields, since insurers invest heavily in these super-safe government bonds in order to ensure they'll have the money to pay your pension. If you're unlucky enough to buy an annuity at a time when gilt yields are low, you'll get less pension income for the same amount of investment fund.
Q. And where does QE fit in?
Most of the £75bn in new money the Bank of England plans to print will be spent buying gilts. All that extra demand will raise the price of gilts, which automatically means yields – the amount of income a gilt pays divided by its price – will come down.
Q. Hang on, isn't my pension guaranteed?
Not unless you're one of the dwindling number of people in a final-salary pension scheme at work. If you are, QE is less of an immediate problem, though it could be very bad news for your employer, which is going to have to pay more to deliver the pension promise it has made you.
Q. An immediate problem?
Yes. All pension savers, whether they're in line for a guaranteed income or not, suffer under QE in another way. The policy means higher inflation, which is bad news for pensioners because their incomes almost never keep pace with it.
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