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Bank of England's quantitative easing measures blamed for pensions 'meltdown'

Experts have argued that the Bank of England’s attempt to prop up Britain’s ailing economy with successive rounds of quantitative easing (QE) has led to a pensions 'meltdown’.

In four years annuity payouts have plummeted by 27% and some have argued this fact will cause pensioners’ retirement pots to dwindle by thousands of pounds.

Tom McPhail, head of pensions research at Hargreaves Lansdown stockbrokers, argued that while a man with £100,000 in July 2008 could have expected to receive an income of £7,855, this figure subsequently drops to £5,743 for a younger brother if he was to retire today.

A million UK workers have purchased annuity, an insurance that pays out an annual sum to pensioners after the age of 65, and they are set to face the reality of being 'permanently poorer' as a result of the Bank of England’s measures.

QE creates lower gilt yields on government bonds, facilitating cheaper borrowing for businesses, but also results in pension funds being more expensive to finance.

Despite warnings that quantitative easing could cause annuity payments to fall by a quarter, the Bank of England has confirmed that it is adding another £50 billion to the QE pot, taking the total size of the programme to £375bn.

Confirming the detrimental impact that QE will have on annuity rates, Mr McPhail stated: “All other things being equal, we would expect a further fall in gilt yields following an announcement of additional QE and in a short space of time this would be expected to feed through into lower annuity rates. Again.”

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