The winners and losers of the Bank of England’s interest rate announcement

The winners and losers of the Bank of England’s interest rate announcement

Saw this and it does help to explain how it may effect different people, saver, pensions and mortgages.

Hope it helps!



Author: Tahmina Mannan, Joanna Faith – IFAonline | 07 Aug 2013


The Bank of England (BoE) has announced it will not raise the base rate of interest from 0.5% until unemployment falls to 7% or below.

Governor Mark Carney, just over a month into the role, has said the 7% mark represents the point at which the BoE will “reassess” its interest rate policy. The unemployment rate currently stands at 7.8%.

The BoE’s median forecast for unemployment in two years is 7.3%, according to today’s inflation report, but Carney said longer-term forecasts are uncertain.

The Office for Budget Responsibility (OBR) said in its March Economic and Fiscal Outlook that it expects unemployment to peak at 8.0% in 2014 before falling back to 6.9% in 2017.

This means there is a very real possibility that interest rates will remain at 0.5% for at least four years.

We look at who is set to win and lose from Carney’s interest rate announcement…


Those most negatively affected by Mark Carney’s proactive stance will be savers. The bank will likely tolerate above-target inflation over the next few years, meaning real interest rates will remain negative.

After 53 months of savings hell, it is little wonder savers are dropping like flies.

According to the Trade Union Congress (TUC), the rate of household savings has dropped by 43% in the past year, partly due to families struggling with rising prices and partly due to the lack of incentive to squirrel away money for a rainy day.

Campaign group Save Our Savers said that although the financial crisis was caused by debt in the first place, this policy continues to favour borrowing at the expense of savings.

The campaign group said that four and a half years of 0.5% base rate have failed to invigorate the economy yet have stolen over £220bn from the nation’s savers’ and removes consumer’s spending power.

Simon Rose of Save Our Savers said: “The Bank of England has failed to meet its inflation target for most of the past seven years. Now it clearly has decided to ignore even higher price rises, inflicting continuing misery on the majority of Britons, in the hope that the same policies that have failed the country since the crisis will somehow magically work in in the future.”

Danny Cox, head of financial planning at Hargreaves Lansdown, said: “Interest rates on cash deposits aren’t going to rise anytime soon and certainly not significantly for three years it seems. That said, the Funding for Lending Scheme, which has depressed interest rates further, is due to end next year so there may be a little improvement then, unless it’s extended.”



Those investing into pensions should benefit from more stable and, hopefully, rising stock markets. Pensions are a long term investment and in most cases investors should keep saving regardless of short term news.

Forward guidance will bring clarity to annuity rates which have been subject to questions over rises for some months. We now know annuity rate rises are unlikely for 3 years.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “For those with a small pension pot or who need certainty, it now makes sense to get on with buying an annuity; for those with larger pension pots or who can tolerate some investment risk, it makes sense to park the idea of buying an annuity for a few years and look to income drawdown instead.”

Meanwhile, John Fox, managing director of pension provider Liberty SIPP, said today’s news is “disastrous” for pensioners who already rely on savings for their retirement income.

He said: “As Mark Carney basks in the plaudits, many pensioners will be wringing rather than clapping their hands.
“The Governor’s commitment to what’s likely to be an extended period of low interest rates is disastrous news for pensioners who rely on savings for their retirement income.
“Such loose monetary policy may stimulate the wider economy, but the inflation side-effect it is likely to trigger will erode the spending power of anyone struggling to live on an annuity.”


The Bank of England itself has said in the past month that mortgage borrowers would struggle with monthly repayments if interest rates rose by as little as 2%, unless the rise was matched with a similar rise in UK incomes.

Therefore it goes without saying that those looking for a new mortgage, or already with one, will be relieved not to see their monthly repayments shoot up.

Danny Cox of Hargreaves Lansdown said: “Lower for longer interest rates and an easing of bank’s currently strict lending criteria will improve the mortgage market and we could see already ultra-low mortgage deals improve further.”

It is also worth noting that the UK’s recovery is largely underpinned by the housing market continuing to strengthen – which will require more people to want to get on the property ladder, more housing transactions and housing development.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The outlook for the housing market continues to improve as increased mortgage availability, better rates and more choice at higher loan-to-values combine to make buyers more confident about their ability to get funding.

“It is still too early to describe the housing market as being in rude health, however, as there is a worrying lack of stock, which is the main driver behind the latest rise in house prices. However, the number of transactions is also on the rise.”

Changes to the State Retirement Age

Changes to the State Retirement Age

Changes to the State Retirement Age

With the Government’s seemingly endless tinkering with the State Retirement Age it is easy to lose track of when you can expect to receive your State Pension. We have moved a long way from the days when men retired at 65 and women at 60.

The following is a summary of where we are at and what further changes the Government is proposing to make to the State Pension Age (SPA).

Current Rules

These were introduced in the Pensions Acts of 2007 and 2011 and were designed to increase the SRA for women to 65 and then to 66 and 68 for both men and women.

2010 to 2018 Women April 1950 to December 1953 SPA increases gradually to 65
2018 to 2020 Men & Women December 1953 to April 1968 SPA increases to age 66
2044 to 2046 Men & Women   SPA increases to age 68

Proposed Changes

The Pensions Bill 2013 proposes to make further changes which are likely to be made law by the end of the year. This introduces a SRA of 67.

2026 to 2028 Men & Women April 1960 SPA increases to age 67

Confused – well you’re probably not alone. Enter your details in the following website to get your expected SRA under the current rules but remember that it could well change again if the last few years are anything to go by. In fact, the Government has stated that the SRA will be reviewed every five years with the next review taking place in 2017.

Don’t forget that in addition to the above, the Government will be replacing the current two tier State pension that is comprised of the basic state pension and second state pension (S2P – previously SERPS) with a flat rate pension from April 2016 paying a maximum of around £144 a week in today’s money if you have made National Insurance Contributions for a minimum of 35 years.

The New flat Rate State Pension

The New flat Rate State Pension

Found this from Legal & General and it explains the new state pension scheme, I hope it helps and if you have any questions just ask. Mark

Long awaited details of the new state pensions system designed to simplify the current complicated system have been unveiled. The most momentous overhaul of the state pensions system in the last 50 years is outlined in a 108-page White Paper. These are the key points of the proposals.

From April 2017, a new single weekly flat rate of £144 (in today’s money) for all pensioners (the actual figure will rise to take account of inflation) will replace the current system. The  tiers of the graduated, basic state and the state second pension will be merged into one, and the means testing complexity of Pensions Credit will be abolished. The single tier will increase in line with the average growth in earnings. 

To qualify for the full amount, individual will require 35 qualifying years of national insurance contributions/credits (increased from the current level of 30 years). After 35 years, no further benefits will accrue. Importantly, nobody will be entitled to a penny until they’ve amassed at least 7 to 10 qualifying years.  And those accruing fewer than 35 years but above the minimum number of qualifying years will receive a pro-rated amount. 
The focus will be on individual qualification – being able to inherit or receive rights from a spouse or civil partner will cease. Deferral of the single-tier pension will be permitted in return for an increased weekly rate, but the ability to take the deferred payment as a lump sum will stop. 
There’ll be a sharp cut-off point – the new pension won’t be available to those 11 million people who have already reached their state pension age by April 2017. 
The proposals also confirm that the state pension age will be increased from 66 by 2020, then to 67 between April 2026 and April 2028. Due to increasing longevity, the age will be reviewed every 5 years.

Scrapping the state second pension signals an end to defined benefit (DB) contracting out. The downside is that 7 million members (figures issued in the White Paper) of DB schemes (most of these are in the public sector) will face a hike of 1.4% in their National Insurance (NI) contributions. Furthermore, employers sponsoring such schemes will pay an extra 3.4% NI, and this cost increase is likely to accelerate the closure of DB schemes.

Due to the inherent complexity of the current state system, transitional measures will address the issues of state pension benefits accrued prior to the implementation of the single tier pension.

Knitting together the diverse components that make up state pension provision won’t be straightforward – there’ll undoubtedly be winners and losers. Those who will particularly benefit will be women who have taken time off to care for children; low earners; and the self employed who currently are entitled to only a full basic state pension (currently £107.45 a week). The new system will be detrimental to those older employees with long-term membership of SERPS/State Second Pension.

Despite these new proposals having some flaws, these changes should be embraced positively as individuals will understand their state pension entitlement and will be in a far better position to prepare for their retirement and plug any shortfalls with private pension provision.  At a time when auto-enrolment is being rolled out across the workforce, and individuals are being encouraged to make additional provision for their retirement, abolishing means testing creates far more of an incentive to save.

Nicola Smith
Pensions Technical Analyst
Technical Solutions Team