King tells pensioners: quit whining
That's the view, in essence, from Bank of England governor Sir Mervyn King, who claims the easing program has not hit pensions as hard as some claim. Is there some truth to King's words?
"I think he's right," says financial adviser Michael Bakowski from advisers Chamberlain de Broe in central London. "People are living longer. It's the same problem with state taxation. When the state pension was introduced, only a very small percentage of people lived to the age of 65. Nowadays the average British male lives to around 77."
In other words, the money has to come from somewhere. King was speaking in the House of Lords yesterday when, quoted in the Telegraph, he said: "I'm concerned about what has happened to the pensions industry and defined benefit pensions but I think they reflect a wider set of issues. The decline cannot be laid at the door of our [quantative easing] programme."
But his words may remain hard to swallow for many pensioners seeing historically low interest rates do little favours for their savings. The tough tone offers little comfort to those approaching retirement, faced with much reduced final salary pension scheme options and low annuity values.
Healthier, wealthier?Independent financial adviser Richard Clarke from Cheshire-based Chartwell Financial Services says QE has certainly had a significant effect on final salary schemes. "But the last 15 years has seen a much greater impact because of changes in legislation. This has seen the slow and painful death of the best type of pensions arrangements in the UK and Europe."
"To top it all," he says, "given the dramatic change in demographics in the last 30 years, defined benefit pensions schemes were never really really going to work given that baby boomers were coming to their retirement age with a life expectancy of females running at 87 and males at 82. Add the combination of those together and it's inevitable the final salary market has to come to an end."
When the state pension was introduced in 1948, many did not envisage that this social insurance would be claimed by so many for so long. So, should British pensioners be grateful for what they've got?