The Bank of England’s MPC (Monetary Policy Committee) has recently decided to raise interest rates to 0.5%, which is the first increase in this bate rate for a decade.
This rate rise is likely to have been down to rising inflation as well as GDP figures having strengthened in the third quarter of 2017.
How do interest rates affect pensions?
A less positive aspect of the rise in interest rates could mean that pension savers may see the value of their pension funds fall. This is likely to happen as a result of falling bond prices, which is a common occurrence when interest rates rise.
Another concern for pension savers is for those who are looking to transfer their final salary pension. This is because rates for those transferring their pension are likely to be lower as a result of rising interest rates.
However, for those looking to purchase an annuity, it seems to be good news for now. This is as a result of potential improvements to annuity rates thanks to a rise in interest rates. This could mean that those looking to purchase annuity may be able to receive a higher income.
Many experts believe that this is not actually a precursor to more rate rises over the years, and that the economy is likely to become less precarious as soon as inflation returns to target levels.
However, with this in mind, it’s important to focus on assets that are able to deliver predictable returns as well as an attractive level of income.
If you’re looking for a local financial adviser or pension adviser and wish to discuss how your pension may be affected, contact KLO’s financial advice team today. Please call on 01926 492406 or email us at firstname.lastname@example.org to make an appointment.