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Half a million OAPs pay price of rate cuts

By Olinka Koster for MailOnline
Updated: 07:46 EDT, 6 March 2009

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As many as half a million pensioners have been plunged into poverty by savage interest rate cuts, it was claimed last night.

Hammer blow: Many pensioers will fall below the £151 a week poverty line.

The country's 8.5m pensioners with savings have lost massively through the base rate collapsing from 5% in October to 0.5% yesterday.

Many of them rely on the income from their savings accounts for their day-to-day survival.

Last night, the country's biggest pensioner group warned that yesterday's cut would push a further 50,000 older people below the poverty line - bringing the total in the past six months to an estimated 500,000.

Neil Duncan- Jordan, of the National Pensioners' Convention, said: 'The interest rate cuts have been disastrous for the majority of pensioners who have savings.

'Pensioner poverty is on a knife edge as just a few pounds makes a lot of difference to someone who is on a low income.

'We estimate that yesterday's cut alone could force tens of thousands under the poverty line, and that up to half a million have been plunged into poverty over the last six months.

'The killer blow had already been struck but yesterday's cut was the last nail in the coffin for pensioners' savings.

'If you were getting £151 or more a week because you were getting £10 from savings and that has gone down to £1 or nothing, you may suddenly be in poverty.'

The official poverty line is £151 in weekly income, after taxes but before housing costs. It is calculated using definition of poverty which classes anyone living in households of below 60% of median income as being in poverty.

Analysts warn that the latest rate cut would do little for the economy and pensioners are 'sacrificial lambs' for the Bank of England, which is resorting to other measures to revive the economy.

Howard Archer, of the consultancy IHS Global Insight, said: 'With interest rates already so low, a further reduction will probably only have a very limited overall positive impact at best. Meanwhile, the lack of credit availability remains a very serious impediment to economic activity and recovery hopes.'

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According to the financial information firm Moneyfacts, 187 savings accounts pay 0.1% or less - 54 more than a month ago. It means a customer with £5,000 in the bank gets interest of just £5 a year. As more accounts follow suit, there will be little or no incentive to save at all.

Adrian Coles, of the Building Societies Association, said: 'Today's decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further.

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'It will be felt hardest by the many elderly people who have saved responsibly all their lives and are reliant on their savings interest to maintain an acceptable standard of living in retirement.'

Tim Sutcliffe, of financial advisers pi financial, said: 'I wouldn't be surprised to find that after yesterday's 0.5 point interest rate cut, at least half of the pensioners in this country are now struggling below the poverty line.'

The latest cut also heralded the end of free banking. One bank chief, who did not wish to be named, said that as interest rates approach zero, 'we will have to start charging again'.

Chancellor Alistair Darling admitted yesterday that savers were being hit hard. 'There are many people who depend upon savings for their income,' he said. 'I want to see what I can do, in the Budget and other times too, to help people.'

Record numbers of Britain's 11.6m pensioners are getting jobs or staying in work because they cannot afford to retire. A single person on the full state pension gets just £90.70 a week.

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