MSE News: Bank of England pumps further £50bn into economy

Former_MSE_Helen · 9 February 2012 at 1:40PM

This is the discussion thread for the following MSE News Story:

"The Bank's Monetary Policy Committee voted to increase the quantitative easing programme from £275bn to £325bn ..."

Read the full story:
Bank of England pumps further £50bn into economy

dunstonh · 9 February 2012 at 2:03PM

The QE move will draw criticism from pensioners' groups who have warned it could leave more than a million pensioners "permanently poorer for the rest of their lives" due to the adverse effect money-printing has on annuities, which is where you buy a regular retirement income in return for your pension pot.

This is being a bit picky with the information.

Firstly it has no impact on existing pensions in payment under annuity. However, for those coming up to retirement, they should have reduced their investment risk and typically that means investing more in gilts. In the last few years, partly because of QE, gilt funds have seen high growth. Much higher than is typical.

So, those coming up to retirement may be getting a lower annuity rate but their pension fund will be higher as the investment returns with gilts has been better than expected.

it is wrong to focus on one side without consider the other. They investment growth largely cancels out the lower annuity rate.

However, this assumes that people run their investments correctly. Not all do.

jamesd · 9 February 2012 at 2:11PM

"The Bank of England injected a further £50 billion into the economy today"

No, it didn't. It really announced that it has increased the size limit for future injection of money by £50 billion.

When did (past tense) the Bank of England inject this money? Today, before the announcement as the MSE story wording claims ("today", and past tense, so it's already happened)?

The official Bank of England statement says: "The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion."

Does MSE have information that the true situation is other than that represented by the Bank of England?

Timing of events matters in these things and news that the BoE hd been doing QE without prior announcement would be significant.

jamesd · 9 February 2012 at 2:16PM

There's no requirement for a pensioner to buy an annuity and hasn't been one for those just retiring for many years now. Even after age 75 it hasn't been required since the Labour government introduced Alernatively Secured Pensions a few years ago. A prospective pension can use income drawdown - still capped at a rate related to gilt prices - instead, then buy one or more annuities later. Since the optimal age for annuity purchase is something around or over 75 for those in good health that's no bad thing.

JimmyTheWig · 9 February 2012 at 2:56PM

What are the long term plans for this?
Are they planning on taking this money back out of the economy at some point?

All the talk is of a cumulative total - it's gone from £275bn to £325bn. Will this ever go down and back to zero?

jamesd · 9 February 2012 at 3:34PM

Eventually yes, they will take the money out. Not any time soon.

fairleads · 9 February 2012 at 4:08PM

jamesd wrote: »

A prospective pension can use income drawdown - still capped at a rate related to gilt prices - instead, then buy one or more annuities later. Since the optimal age for annuity purchase is something around or over 75 for those in good health that's no bad thing.

But as the DD cap is linked to the gilt rates the drop in gilt prices also reduces the allowed % income drawdown rate.

roger196 · 9 February 2012 at 4:11PM

This money is being pumped into the banks NOT the economy. If they really wanted to support industry and manufacturing, it would be better to give UK firms a tax holiday rather than supporting excessive salries in the financial sector.

worldwheeler · 9 February 2012 at 4:31PM

roger196 wrote: »

This money is being pumped into the banks NOT the economy. If they really wanted to support industry and manufacturing, it would be better to give UK firms a tax holiday rather than supporting excessive salries in the financial sector.

This is exactly right. QE is money, in billions, given to banks at 0% interest under the "guise" that it is to stimulate the economy. What economy? Not the wider, real economy. NO, the only thing done for the real economy is austerity imposed on it by the colluding thieves who engineered the huge credit bubble and then the crash.
Worse for the working man is as wages are driven down, thus increasing even further the gap between the financial thieves who enriched themselves, inflation is being driven higher by QE in the hands of the same thieves. QE is used to speculate and profit on commodities, energy and food. Driving the prices for the people higher and harming the poor. Don't think you belong to the bottom of society, unless you are in the 0.01% club of thieves at the top you are heading down and down with everybody else. The poor of the land increase in number as the austerity drives more and more below the breadline.
The whole credit bubble, crash and now QE is social engineering that is to drive the populace back to Victorian days, nee middle ages feudalism. Hurrah for the lords and master for they are noble and we are just their peasant slaves, kneel, tug forelock, bow

jamesd · 9 February 2012 at 4:52PM

jamesd wrote: »

A prospective pension can use income drawdown - still capped at a rate related to gilt prices - instead, then buy one or more annuities later. Since the optimal age for annuity purchase is something around or over 75 for those in good health that's no bad thing.

fairleads wrote: »

But as the DD cap is linked to the gilt rates the drop in gilt prices also reduces the allowed % income drawdown rate.

Yes, that's the "still capped at a rate related to gilt prices" part of the text you quoted. The cap is currently £56 per £1,000 of pension pot for a 65 year old man at 2.5% gilt yield. A more normal level is £70 at 4.5% gilt yield so it's substantially lower than usual at the moment.

Unlike a retirement lifetime annuity this cap is recalculated at least every three years, so the income that can be taken - subject to suitable investment returns - will increase as the gilt yield increases when fiscal easing reduces. Or if not, with increasing age. At today's 2.5% gilt yield the cap is £80 at age 75 and £143 at 85.

Over a shorter term a higher rate of income could be taken from an invested pension commencement lump sum to cover the reduced income level from the portion remaining in the pension pot.

For anyone who wants to know the cap level they could start at this post which gives the cap levels for males for various ages and gilt yields, how to check the levels and a link to a history of gilt yields.

MSE News: Bank of England pumps further £50bn into economy

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free