Pensioners feel pinch from low rates

May 8, 2009

rtrt8h- Sharon Bratley is chartered financial planner at Fair Investment. The opinions expressed are her own. -

What does the decision by the Bank of England to keep interest rates at a record low of 0.5 percent mean for the average Briton in retirement?

Well, unfortunately things are not looking good for pensioners at the moment. The official rate of inflation may be on its way down, but in real terms inflation remains high, particularly for pensioners. This time last year, the cost of everything from gas and electricity to a loaf of bread cost less than it does today, and despite falling inflation, prices are slow to come down from their peaks of late last year.

Take energy bills for example – there are millions of pensioners living in fuel poverty, yet it is only in the last few weeks – as the summer months approach – that energy companies are finally bringing down their prices – although still at a fraction of the rate that they increased at.

Add to this the fact that RPI, which pensions are linked to has fallen to below zero, and it is no surprise that many pensioners rely on other savings and investments to supplement their incomes, which is why the failure to increase the base rate will come as a further blow to pensioners.

This time last year the base rate stood ten times higher than it is today at five percent, and savings account rates reflected this. But as the average no notice savings account rate is now 0.65 percent (according to Moneyfacts.co.uk), pensioners who are having to rely on their savings are finding themselves left high and dry.

Since interest rates tumbled from their heights of last year we have seen a change in both the economy and the way that consumers treat their finances. In recent months investment houses have been inundated with new applications for investment products as consumers turn their backs on conventional deposit accounts offering low returns.

However, investment is not always the best route for people, particularly those in financial hardship. One of the most important things for people to do is face up to facts and seek impartial advice from somewhere like the Citizens Advice Bureau, who can then point them in the right direction.

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