Mark Carney’s appearance before the Treasury Select Committee on Thursday provides further evidence that pensioners, and those nearing retirement, might need to re-evaluate their investment plans, says the boss of the world’s largest independent advisory firm.
The observations from Nigel Green, chief executive of the deVere Group, follow the next governor of the Bank of England’s quizzing by MPs, during which he said that he believed “flexible inflation targeting” was likely to be the “best” policy.Â Inflation has been above the 2 per cent target since late 2009 and is currently at 2.7 per cent.
Mr Green comments: “Mr Carney hinted that inflation could be allowed to stray from its target and this is disconcerting for workers on the cusp of retirement and current retirees, particularly as it has been above target for much of the past six years.
“Higher inflation would be another hammer blow to the returns offered by government bonds, known as gilts, an asset class which the over 50s have, traditionally, had great exposure to as they have been perceived as a ‘safe haven’.
“With the incoming governor of the BoE suggesting that he favours ‘flexible’ inflation targets, the case is strengthened for people nearing retirement or those currently retired to consider higher risk/higher returns investments, as an investment portfolio made up almost exclusively of gilts is increasingly unlikely to produce the yields necessary to fund a decent retirement.”
He adds: “In addition, pensioners and savers, in general, not only those holding UK bonds, will be hit by a rise in inflation as the higher cost of living eats into fixed incomes.
“As such, with rising inflation becoming ever more probable, the over 50s might need to seek advice on inflation-busting investments to help mitigate its adverse affects.”
Mark Carney stressed to the Treasury Select Committee that any change to inflation is Chancellor George Osborne’s remit; and he refuted suggestions that Osborne had been piling on pressure for him to consider targeting a combination of inflation and growth rates, rather than just inflation.
“Whether Mr Carney intends to focus, as he hinted in a speech in December, on targeting nominal GDP – a measure that takes into account inflation and growth – remains to be seen.Â One thing is certain though, it has, seemingly, sparked a debate on the issue on behalf of Mr Osborne,” concludes Nigel Green.