Spanish Bonds this week have hit over 7% for the 10 year and Italy’s bonds have also increased but the EU is looking for new and devious ways to fund them. They now want to introduce new rule to force your pension fund to use 20% to buy shite sovereign bonds.The Daily Mail reports on how it will affect UK pension holders.
Millions of people could see the value of their pensions slashed by up to 20 per cent because of new EU rules. Those with a £100,000 pension fund could be more than £1,100 per year worse off in retirement because of the reforms, research has shown.
The Solvency II rules, which are due to come into effect in January 2014, will force pension funds to hold a higher proportion of ‘safe’ Government bonds. As the bonds – called gilts – have such low rates of return it will drive down the returns on retirement fund annuities, which are used to pension income.
The reforms are designed to make pension funds safer and reduce the risk of them going bust. Annuities, which set retirement income for life, have already fallen to historic lows because of the impact of quantitative easing.At present, a p ension annuity fund may invest 20 per cent in low-yield gilts and the rest in riskier corporate bonds which have a higher rate of return.
But under the new EU rules, annuity funds will be forced to hold a higher percentage of gilts.
New research by Deloitte suggests annuity rates will plunge by between five and 20 per cent when the directive comes into force in January 2014. A £100,000 pension pot currently gives an income of £5,837, but once the regulations come into effect they will be between £292 and £1,167 a year worse off.
The return on government bonds has fallen in value because the Bank of England’s quantitative easing programme has involved buying them up to inject an extra £325bn into the economy and investors are moving their funds from risky countries like Greece to Britain. This extra demand drives up their prices but consequently means that interest rate yields plunge.
Yields have fallen to historic lows, and the situation could get worse.
Its bound to have a devastating affect on pension returns as the debt situation can only get worse.
‘The EU rules will make the value of pensions fall further. Its a series of pieces of bad news for British pensioners.’ As a result of these rules everyone will get much less pension out of their fund. We don’t know exactly how much less.’We are anxious that the UK Government should stand up for UK pensioners.’ She added that plunging annuity rates are putting young people off saving for retirement.
In a double-whammy for male pensioners, new rules banning gender discrimination could hit retirement incomes. At present, men get higher annuities because of their shorter life expectancies.