Low gilt yields for years

A leading fixed interest fund manager has said that gilt years could stay at record low levels for years, should the Bank of England further extend its asset purchase programme.

The claim from M&G’s Richard Woolnough follows an additional £50bn of quantitative easing announced by the Bank last week, taking the total to £375bn.

Woolnough referred to recent comments from the Bank of England governor Mervyn King, who suggested that the UK was not yet half way through its economic crisis.

This means that a further £375bn of quantitative easing could follow.

Woolnough believes that gilt yields could remain depressed for at least another three years, until 2015.

Whilst £750bn of QE sounds unrealistic, particularly because of the effort it would take to eventually unwind, it is a possibility that investors should consider.

Low gilt yields have big implications for savers, investors and those approaching retirement.

When combined with rising life expectancy and other pressures on annuity rates, the income available to those converting a pension fund into an income for life is likely to remain low and fall further over the coming years.

Understanding not only how to obtain the most competitive annuity rate, but how to select the most suitable retirement income option, will be very important as the baby boomer generation reaches retirement age over the next few years.

Photo credit: Flickr/jenny downing