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Pension schemes suffer from Quantitative Easing

Pension schemes suffer from Quantitative Easing
Published:  24 Jun at 9 AM
Pension schemes that invest in bonds have seen their value drop as the US and UK central banks look likely to bring Quantitative Easing to a close. The bond buying programmes were introduced after the credit crash as a way of stimulating the economy. Since 2009 this has caused bonds to soar, but signs that the Federal Reserve is going to bring its money printing programme to an end has seen the value begin to slide.

Critics of QE claim it distorts the bond market. Lifestyle pension funds are reliant on bonds as they are seen as a safe bet. However it has been estimated that since the start of May, when analysts began warning that the Fed could pull back on bond-buying, the value of lifestyle pensions has fallen by more than 5 per cent.

In real terms this means that a pensioner with a retirement pot worth £100,000 faces an annual income drop of £265. According to UK fund managers there are around 750,000 people in lifestyle funds and another 1.5 million people due to have their pensions invested into the funds over the next 10 years.

Pension investment managers are warning people to check how their pensions are being invested now.

Pensions expert Ros Altman has criticised the Bank of England for QE because the distortion of the market means that investing a pension pot in bonds no longer minimises risk.