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Actuarial Post: Forward guidance should benefit product innovation

Actuarial Post: Forward guidance should benefit product innovation

By Tom Murray, Head of Product Strategy, Exaxe.

New Bank of England Governor, Mark Carney, kicked off his new regime with an impressive innovation; the arrival of forward guidance, which gives a long term view of where and when the Bank of England intends to move interest rates. It also provides a clear view of the Bank of England’s monetary strategy that will benefit consumers and professionals alike. No longer will financial planning be at the mercy of the herd mentality of the financial media, who have a tendency to fill up empty space on slow news days by forecasting changes to the interest rates, presumably on the basis that, similar to the man who predicts rain every day, if you do it often enough, you will eventually be right.

Instead financial advisers will now be able to work on the basis of a proper understanding of the medium term strategy of the BoE, which they can incorporate into their holistic planning of their client’s financial futures. This will obviously help them to achieve better outcomes for their clients and, as a bonus, it will also remove an excuse for bad planning; no longer will IFAs be able to claim that a sudden change of policy from on-high has driven the clever financial strategy they worked out for their client off-course.

That being said, there was a downside in the actual guidance given this time, at least for those approaching pension age. The Banks’s guidance that interest rates will remain at their current minimalist levels until unemployment drops to 7% means, by most estimates, that there will be no upward movement in rates for the next three years. For would-be retirees holding out for annuity rate rises, this means that their hopes have now been dashed and that they should proceed with annuity purchases now rather than hold on in the false expectation that some relief is on the way. No doubt, financial advisers are busily responding by directing people into annuities now, or into income drawdown, depending on their individual needs...

Click the following link to read the full article in the Actuarial Post: Actuarial Post - Edition 28

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