It’s been a decade since the financial crisis hit and, although we have seen economies around the world – led by a strong US – begin to grow again, the fall-out from the worst economic period in living memory is still affecting all of us.
A combination of conventional and unconventional monetary policies, such as quantitive easing, has helped the economy grow, but some areas remain badly hit and are suffering from a sluggish recovery.
This is most evident when looking at savings rates. Prior to 2007 these were up to 6% pa – admittedly this was with Icelandic banks – but now, a saver is lucky to receive 1% pa.
But it’s not all bad news regarding interest rates. In March 2009, the Bank of England cut its base rate to 0.5% (down to 0.25% August 2016). This has pushed down the rates of interest on mortgages and loans making them more affordable. In August 2007, the average mortgage interest rate was 5.88%. Today it is 2.04%*
Until April 2015 most people retiring would buy an annuity and this would pay for a fixed income for life, but the dramatic fall in interest rates and gilts yields means that annuity rates are very poor.
This led to the Government introducing ”˜pension freedoms’. This represented a major shift in how people access their pensions, giving greater flexibility and an option to buy an annuity or not. This allows for greater tax planning now and between generations of families.
For example, retirees now have the option of up to 25% tax free and can choose what to do with the rest. They can choose to either keep this invested, take frequent lump sums or buy an annuity.
As always, we recommend investing for the long term and speaking to an adviser who will make you aware of the options available to you based on your personal circumstances.
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