MPC's decision: The impact on pensioners and investors

Today’s announcement by the Monetary Policy Committee to cut the prime lending rate by 50 basis points is not good news for all consumers. Allan Heynen of BDO Wealth advisers, had the following comments.

Although the 0.5% rate cut has been widely welcomed by South Africans who are struggling with high levels of debt it brings little comfort to pensioners and investors who rely on interest bearing income to fund their living costs.

In 2008, at the peak of the current cycle, an investor or pensioner was able to obtain an interest rate of 11.5% on call deposits. Now that interest rates have been cut again for the 9^th time since June 2008, that interest rate has been halved and investors and pensioners can obtain no more than 5.5% on call deposits.

Ultimately this has resulted in pensioners now facing an uncertain future with basic living costs such as electricity and food increasing in the same cycle. However, it is advised that investors and pensioners think of innovative ways to increase their monthly incomes by diversifying out of cash deposits so that there is no need to be drawing down on their capital to fund monthly expenditure.