Pensions experts react to the latest Bank of England base rate hike of 0.25%

by | Mar 23, 2023

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Following today’s 0.25% hike in UK interest rates to 4.25%, the rise clearly has implications for pensions and for pension schemes.

Pensions experts have been sharing their reactions to the Bank of England’s latest interest rate rise with IFA Magazine as follows:

Simeon Willis, Chief Investment Officer at XPS Pensions Group, commented:Typically, a rate rise coupled with the prospect of falling long-term inflation usually spells good news for pension schemes. However, over March we have seen a reduction in long-term gilt yields as expectations over future rates rises have been pared back and so many under hedged schemes will have seen funding levels deteriorate over the month despite this rates rise. Elsewhere, and given the current turmoil within the banking sector, pension schemes will also be keeping a close eye on the financial markets in the hope that this announcement does not have an adverse impact on equity and credit markets, which is the other key driver in scheme funding levels.”

Lily Megson, Policy Director at My Pension Expert, said: “Yesterday’s shock jump in inflation may have tipped the balance, encouraging this further hike in interest rates. Consumers’ reactions will likely be mixed.


“Rising interest rates would typically be beneficial for savers and pension planners. However, the base rate is still less than half the rate of inflation, meaning savings are losing value in real terms, which is placing relentless pressure on millions of people’s finances. It comes as little surprise, therefore, that My Pension Expert’s own research found that over two fifths (43%) of people believe that the current economic environment is derailing their financial plan. Elsewhere, over a third (34%) of Britons cite rising interest rates as the reason for delaying their retirement.

“In such uncertain times, it is vital that everyone – not just society’s most affluent – feel able to safeguard themselves from economic uncertainty. So, it is important that they have access to the right support. From clear, jargon-free information to accessible independent financial advice, the government, regulators, and the financial services industry itself, must work together to ensure everyone has the help they need to weather this financial storm. In doing so, Britons will be able to better understand their financial situation and make informed decisions to protect their financial future.”

Becky O’Connor, Director of Public Affairs at PensionBee, commented: “In isolation, higher interest rates would normally be considered good news for savers and older people looking to take out an annuity – a secure form of income in retirement. That’s because rising interest rates increase the returns available for both. 


But higher rates when coupled with even higher inflation, as we are currently experiencing, suit no one. When rate rises are dwarfed by inflation, even savers find it hard to cheer. 

“The current macroeconomic situation feels like the worst of all worlds for people trying to make their money grow over time, like workers with pensions, or those trying to preserve its value to make it last through retirement, such as those who have started to take an income from their pensions. 

And as inflation creeps higher, leaving interest rates and also stock market returns lagging, savers and investors, including people paying into their pensions, might begin to wonder whether they will ever get ahead. 


While it is true that higher interest rates should, in theory, bring down inflation, that hasn’t started to happen yet. Until it does, it’s hard even for those who theoretically benefit to feel pleased. But the good news is that the Office for Budget Responsibility has forecast that inflation will fall to 2.9% by the end of this year. At that point, if interest rates remain roughly where they are now, cash savings will look more rewarding for those seeking a secure and accessible place to store their money and a more stable stock market environment should be good news for pension investors, too.

“In the meantime, it’s important for pension savers and retirees to focus on controlling what they can control, which includes increasing contributions if you can and making sure your money is invested correctly for your financial goals, whether that’s long term growth or taking an income.”

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