How interest rate changes might impact on pension savers
Nathan Long, Senior Pension Analyst at Hargreaves Lansdown speaks to Business Leader about how today’s announcement that interest rates have risen to 0.5% and how it might affect pension savers.
‘An increase in interest rates is widely anticipated and we have seen the yield on Gilts increasing over the last month.
This has been feeding through into improved annuity rates; good news for anyone looking to buy a guaranteed income as they’re now being offered better terms.
If the Bank of England decide not to increase rates we may see annuity rates fall back slightly, however if they increase by more than 0.25% or the market anticipates that interest rates will rise again soon afterwards, we could see further improvement in the amount of income your pension pot will buy.’
‘Shopping around for the best annuity remains imperative, particularly because two thirds of retirees now qualify for higher levels of income because of their health or lifestyle.’
‘Rising Gilt yields also impact on final salary pension schemes. There is a direct link between Gilt and bond yields and the liabilities on final salary schemes.
A rise in interest rates would likely feed through to lower scheme deficits, however it could also mean the end of the historically high scheme transfer values we have seen in recent months.’
‘Whilst improving Gilt yields are good for those wanting to buy an annuity, it is not so good for those whose pension is in funds that invest in Gilts, as their value will fall. Pension scheme members are often invested in these funds by default as they close in on their scheme retirement date. Avoid sleepwalking into retirement by taking time to understand where all of your pensions are invested.’