How Negative Interest Rates Sap Consumer Spending by an Ever Larger Part of Consumers | Wolf Street

As the population ages, the financial pressures grow. Two weeks ago, the privately owned Bank of Ireland — not to be confused with the Central Bank of Ireland — announced that it is going to start charging negative interest, of 0.65%, on cash in accounts held by investment and pension trustee firms. The bank said it had written to 14 investment and pension trustee firms to inform them about the new negative interest rate.

In the UK, where the benchmark interest is 0.10% but could be taken into negative territory sometime soon, recent corporate collapses such as that of Carillion have revealed the gaping deficits that exist in many corporations’ defined pensions plans. According to research by PricewaterhouseCoopers (PWC), the total deficit for such plans in the UK had soared to £340 billion by August 2019, after doubling in just one year, in part due to falling bond yields.

And these reductions in payouts are directly hitting consumer spending. Following the cuts, a pensioner who retired in 2018 will lose on average the equivalent of €350 a month in purchasing power over the duration of their retirement, according to a study by the consultancy group IFA. The pension age in Spain has also risen from 60 to 65 and five months in recent years, and is expected to rise to 67 in the coming years. Many people are already voluntarily opting to work til the age of 67.

How Negative Interest Rates Sap Consumer Spending by an Ever Larger Part of Consumers | Wolf Street