PurseThe Bank of England's quantitative easing (QE) policy has been blamed for eating away at pensioners' incomes and making new retirees thousands of pounds worse off.

When they retire, workers use their pension pot to buy an annuity from an insurer, a decision which sets the size of their pension for life.

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Annuity rates are linked to the yields on government bonds, called gilts, which have been dramatically reduced by QE.

Tom McPhail, head of pensions research at Hargreaves Lansdown stockbrokers, said the UK's pension annuity rates have been in "meltdown" for the past four years.

He said the drop means that a man with £100,000 in July 2008 would have been able to secure an income of £7,855, whereas his younger brother, who hits pension age today would only be able to secure an income of £5,743.

Mr McPhail said: "All other things being equal, we would expect a further fall in gilt yields following an announcement of additional QE and in a short space of time this would be expected to feed through into lower annuity rates. Again."

He added: "For investors who are willing to wait for an uncertain period, possibly years, there is the option to delay annuity purchase and wait for yields to recover."

Mr McPhail also said that any fall in gilt yields is also likely to fuel a record deficit in private sector final salary schemes reported by the Pension Protection Fund (PPF) last month.

The deficit of 6,432 schemes is estimated to have increased to £312.1 billion at the end of May, which pensions groups said showed the "immense pressure" final salary funds are under.

The deficit is the largest since the records began in March 2003, although the PPF has cautioned that direct comparisons are affected by changes made to its calculations from April last year, which had the effect of raising liabilities.

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