The Bank of England says while its quantitative easing programme has hit annuity rates, pension funds have been boosted by improved performance of equities and bonds.
Giving evidence to the Treasury select committee last week, bank deputy governor for monetary policy Charles Bean said this improved performance compensates for reduced annuity levels.
He said: “A lot of the discussion focuses on falling annuity rates but, by design, asset purchases are supposed to push up the value of equities and bonds and that compensates pension funds for the reduction in annuity rates.”
The bank has pumped £325bn of new money into the economy since March 2009.
When the monetary policy committee announced the latest £50bn asset purchase last month, Saga chief executive Ros Altman said the Bank was “robbing” those about to annuitise.
On March 2, 2009, a 65-year-old man annuitising a £100,000 pension pot would have received an annual income of £4,709. By February 20 this year, that figure had fallen to £3,660.
Altmann says Bean’s comment shows that “he does not have a clue” about how pensions work.
She says: “Permanently impoverishing pensioners is not a fair way of stimulating the economy. Arguing that the stockmarket and gilt markets have benefited ignores the fact that buying gilts undermines the whole pension system.”
Treasury select committee member Andrea Leadsom says the bank is not taking account of the impact of quantitative easing on the wider economy.
Speaking to Money Marketing after the select committee hearing, she said: “It is not accepting that it is picking winners and losers when using QE. The bank says it is just another monetary policy tool and it does not make a difference but it favours borrowers over investors by pushing down interest rates as well as harming pensioners.”