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Low Interest Rates Threaten Pensions, Oecd Chief Warns

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http://www.independent.co.uk/news/business/news/low-interest-rates-threaten-pensions-oecd-chief-warns-10343838.html

Low interest rates and loose monetary policies are threatening the future of the insurance and pension industries by forcing providers to switch their investments into riskier asset classes, a damning report has warned.

The Organisation for Economic Co-operation and Development (OECD) said the current economic climate posed “serious challenges” to life insurers and final salary pension schemes, which may not be able to meet their obligations to policyholders in the future.

Both life insurers and pension schemes invest heavily in fixed-income securities such as long-term government bonds, which have fallen in value in recent years as quantitative easing programmes in the US, UK, Japan and Europe hit yields, or returns.

The OECD said it was increasingly concerned that both pension funds and insurance companies may shift their portfolios towards higher risk investments such as private equities, derivatives and structured products.

“The current low-growth, low-interest rate environment poses particular problems for pension funds and life insurers. These financial intermediaries, who offer long-term financial promises, rely on investment returns to honour their obligations,” said the OECD secretary-general, Angel Gurria, as he launched the report in Paris.

“Increasingly, therefore, pension funds and life insurers are feeling the pressure to chase yield themselves, and to pursue higher-risk investment strategies that could ultimately undermine their solvency. This not only poses financial sector risks, but potentially jeopardises the secure retirement of our citizens.”

OECD citing the obvious. And when interest rates go up what happens to the riskier investments....

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Old private sector non jobbers on cushdy final salary pensions at risk of losing the lot

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http://www.independent.co.uk/news/business/news/low-interest-rates-threaten-pensions-oecd-chief-warns-10343838.html

OECD citing the obvious. And when interest rates go up what happens to the riskier investments....

It's not the annuity providers in trouble, unless any of them is running Ponzi (which I wouldn't rule out). They've slashed annuity rates to reflect falling returns, so retiring boomers are getting 3% where their parents (and even those just ten years older) got 15%.

Of course, pension freedoms are another story. A more attractive option than that 3%.

Old private sector non jobbers on cushdy final salary pensions at risk of losing the lot

Lots of pension protection schemes floating around. The real casualties are companies with pension obligations. The zombie economy - companies not quite dead but crippled by pensions - are a drag on our economy, and their crippled state is very largely another facet of the same problem as the "productivity gap" that troubles the chattering classes.

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It's not the annuity providers in trouble, unless any of them is running Ponzi (which I wouldn't rule out). They've slashed annuity rates to reflect falling returns, so retiring boomers are getting 3% where their parents (and even those just ten years older) got 15%.

Of course, pension freedoms are another story. A more attractive option than that 3%.

Lots of pension protection schemes floating around. The real casualties are companies with pension obligations. The zombie economy - companies not quite dead but crippled by pensions - are a drag on our economy, and their crippled state is very largely another facet of the same problem as the "productivity gap" that troubles the chattering classes.

True, and the cap is very high too

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I personally think a lot of the pensions schemes are in trouble, or at least will be long term, hence why the government is letting every tom dick and harry into the country and we are seeing these mandatory workplace pensions. They've probably not helped by allowing greedy pensioners access to the pension pot to propup the housing pyramid.

Invest in a pension.....**** that

Edited by TheCountOfNowhere

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Pretty much what Deninnger has been saying for a couple of years now...and why he thinks they cant/wont continue QE and really actually want to raise rates.

So save the insurance/pension industries or save the banks.

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So save the insurance/pension industries or save the banks.

Insurance industry will survive, just need a big bail in to cover it

Banks are more important for day to day economic functioning, so they'll probably get the nod

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