Pensioners ‘in limbo’ as Bank of England hikes interest rate to 3.5%

World News

What are interest rates?

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Today, the central bank announced it is to hike interest rates to 3.5 percent. The decision has been made in the hopes of calming raging inflation, which remains at staggering highs.

A statement from the Monetary Policy Committee (MPC) said: “At its meeting ending on December 14, 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.5 percentage points, to 3.5 percent. 

“Two members preferred to maintain Bank Rate at three percent, and one member preferred to increase Bank Rate by 0.75 percentage points, to 3.75 percent.”

Understandably, savers are likely to be buoyed by the news of interest rate hikes.

Many will hope the rise will be passed down to high street providers, and thus boost their own savings potential.

However, the situation remains an uncertain one for pensioners and pension savers, one expert has warned.

Andrew Megson, CEO of My Pension Expert, said: “As interest rates rise yet again, UK savers remain in limbo. Even with inflation easing by a fraction, many will still be uncertain as to whether their money will hold its value in the months to come.

“It is little wonder we found 37 percent of Britons approaching retirement feeling uncertain about their financial future.”

Many people will be staring down challenging financial decisions in the coming months.

DON’T MISS
Pensioners set to be paid up to £600 as snow and ice sweep the UK [LATEST]
Energy supplier to pay out following Ofgem review [UPDATE]
State pension age may rise to 68 as Hunt could take ‘hard decisions’ [INSIGHT]

This is particularly the case for people who are on the cusp of retirement, and deciding what path to take.

Mr Megson continued: “When faced with such volatility, some might be tempted to seek security by purchasing an annuity. 

“After all, a silver lining of increased interest rates is annuity rates hitting a 14-year high, offering the potential of a more generous guaranteed income.”

Annuities offer a guaranteed income for life and a person can purchase them using their pension pot.

The option has fallen out of favour in recent years, as rates have been low.

As a result, more people have been driven towards the option of drawdown which leaves a pension invested – but consequently comes with some level of risk.

Mr Megson urged people to think carefully about their decisions based on the Bank’s most recent announcement.

He added: “Whilst an annuity might suit some, it does not guarantee absolute security. 

What is happening where you live? Find out by adding your postcode or visit InYourArea

“Locking oneself in with a fixed annuity rate could leave individuals vulnerable to further increases in inflation. Consumers should avoid making any knee-jerk, long-term financial decisions based on short-term economic volatility. 

“There are plenty of options available to help them achieve the security they crave whilst also allowing them to achieve the best possible value for money. And seeking independent financial advice will help them to achieve this.”

Les Cameron, savings expert at M&G Wealth, added: “With many people feeling the financial pinch, what’s important is how today’s interest rate hike impacts savings and borrowing rates.

“Even with an increase in rates, when coupled with sky-high inflation, anyone with cash or near cash savings will see their money being eroded in real terms. 

“And this is likely to be felt more acutely by pensioners who are likely spend a higher proportion of their cash savings on energy bills.”

Source: Read Full Article