Cornerstone Guide to the August interest rate cuts
Since the Brexit vote there have been 18 annuity rate cuts and in the wake of the Banks announcement industry experts are predicting more of the same in the coming weeks and months. This is bad news for newly retired pensioners or those nearing retirement that need to secure a guaranteed income.
The Bank of England (BoE) interest rates have a direct effect on the UK Gilt yields. Annuity rates are largely correlated with Gilt yields. As Gilt yields fall lower, the annuity rates on offer to newly retired pensioners will only get worse.
Final Salary Pension Scheme
Surely cutting the interest rates can’t affect a final salary Scheme? The truth is that just as with annuity rates final salary schemes are affected as well. The lower gilt and bond yields increase the amount to secure liabilities of final salary type pension schemes. Unfortunately the BoE decision has made the future of these pension schemes even more uncertain.
The Government is already coming under pressure to implement a radical shake-up to allow schemes to pay pensioners tens of thousands of pounds less over their retirements, and experts said this month’s announcement made such changes more likely.
Will Government Premium Bonds and other NS&I savings products be affected?
National Savings & Investments (NS&I) has confirmed that there will be no “immediate” change to savings rates or Premium Bond prizes, although it did not rule out cuts in the future.
Bank deposits and Savings
With the official interest levels so low, industry experts question whether negative rates could be on the cards? Savers are seeing almost non-existent returns on funds that over time will inevitably be devalued by inflation.
At Cornerstone Asset Management we measure the level of risk our clients are willing to take using our very own risk scoring application using the latest technologies. This score then allows us to provide our clients with suitable investment portfolios to match their risks and provide the potential for returns over and above inflation.