Pension pots crippled by falling gilt yields
The cutting of annuity rates could raise the popularity of overseas pension schemes, which are not dependent on gilt yields.
Speculation that Spain will have to seek a full-blown bailout has put millions of pensioners at risk of massive losses, according to deVere Group’s chief executive Nigel Green (pictured)
Approximately £29bn was wiped off the value of the FTSE 100 yesterday, after Spanish government borrowing costs soared to a new euro-era high of 7.5 per cent.
As a result, 10-year gilt yields have approached all-time lows, currently hovering around the 1.48 per cent mark.
The FTSE is again down today – 0.17 per cent at the time of writing – and Green fears the situation could get even worse for investors approaching retirement unless a permanent solution to the eurozone crisis is fleshed out.
"This is disastrous for pension pots as the vast majority of all pensions and savings are linked, at least in part, to shares," he explained.
"The crisis in Europe is driving many investors into the gilts of ‘safe haven’ Britain, which is pushing up their price, reducing their yield and forcing annuity providers to cut rates to historic lows."
"This means those on the cusp of retirement are destined to have a permanently lower level of retirement income."
The deVere Group says the ongoing eurozone saga is prompting an increasing number of pension holders to consider transferring their investments outside the UK.
He commented: "Retirees are becoming poorer due to low annuity rates."
"Therefore, to get the most from their retirement income, a growing number of those who can, namely expatriates, are moving their pensions into an HM Revenue & Customs-recognised QROPS [qualified recognised overseas pension scheme], because buying an annuity with a QROPS is not mandatory."
"With the storm clouds continuing to gather over the eurozone, we expect demand for QROPS to continue to soar," he added.
The bad news for UK pensions follows Green’s recent criticism of the latest round of quantitative easing, which is one of the principal reasons why gilt yields are so low at present.
"Another round of quantitative easing means more misery for millions of people on the cusp of retirement, who have already seen their pension incomes slashed by almost a fifth since the ‘stimulus’ initiative was introduced in 2009," he said.