The Budget – it felt that this one came alone without too much in the way of bells and whistles, but something has occurred that I just could not ignore, and has fuelled my putting pen to paper, or more accurately, finger tips to keys?
Reading through the papers today, I see in The Guardian, Roy Greenslade’s blog has put it all together for me.
Budget thumbs up – national newspapers hail pension reforms. George Osborne's 2014 budget received positive coverage in the majority of papers in the UK
Having read these comments and the articles referred to I have to conclude I am in a majority of one on this issue. Let me tell you how I see it, then you make up your own mind (you’ll do that anyway). My main gripe is relaxing the rules on what people can do with their pension pot.
Back in September 2013, Richard Even in The Telegraph wrote an article about rising annuity rates and how they are linked to government gilts, QE and the interest rate as per the Bank of England. It wasn’t many months ago the Treasury among others were complaining that annuity rates were not high enough and unfair to pensioners and that the pension providers must improve the situation. Following the budget, when asked what would happen should anyone decide to draw their pension pot and spend it on, say, a new car, boat, round the world trip or a host of other options available to anyone suddenly handed a sum of money. In each case, George Osborne, and Danny Alexander gave the same answer. In fact it was the same answer from any Conservative when asked the same question. The answer being that since people had been sensible enough to save for the future; they could be trusted to act sensible with what is after all, their own money. On the face of it, it’s a very reasonable answer. It’s the sheer hypocrisy of the answer that gets me.
Just like the Thatcher government, this one has a very good understanding of human nature. Regarding the Thatcher government, not only did they understand it, they exploited it to the full. The results are all around us today with the rich, richer than ever before and selfish greed everywhere you look. A lot of news print was used to comment on and/or condemn the Conservative party chairman Grant Shapps condescending comments regarding a 1p off a pint and Bingo tax being halved. It quickly deflected attention away from the pension issues.
While the changes to pension pot availability is being hailed as positive, and we needn’t worry about people spending it recklessly, I think this is the very thing that Osborne, Cameron and Alexandra are really banking on. On the other side of the coin is where we should be looking. As soon as people start claiming their pension pot the following will happen. (a) A chunk in the form of tax will be taken (when they first get their hands on their own money), (b) another chunk of tax will be taken when they spend (their own money), and (c) a lot of this money will find its way into the general economy. Those with a large enough pot could do a buy-to-let for instance.
Let’s just look at a few facts. In November 2013, The Association of British Insurers issued a bulletin in which they stated the following. “At the end of 2012, the total money invested in life and pension funds was £2,735bn, an increase of 7% from £2,560bn in 2011”. That’s what this lot are really after. By the measures they have announced, annuities are going to become even less productive than they are now, thus encouraging more and more people to look at alternatives. I have no problem with choice and allowing anyone to do what they like with their own money. My point is, this is not what this latest budget is really about. My suspicions were aroused simply by the fact that Osborne’s, Cameron’s and Alexandra’s answers to the issues raised were so alike I could only conclude they had been rehearsed.
The big challenge for the insurance industry now is to come up with even more attractive packages for draw down and SIPP’s, a section of pension provision that has been growing steadily. It at least enables the industry to hang on to the money and use it. So long as the top dogs don’t become as greedy as those dogs in the banks. I heard a commentator say it was all smoke and mirrors. How true. The smoke is the 1 penny off a pint of beer and Bingo being cheaper. The mirrors are the artful way in which the changes to pension rules have been put forward as an opportunity for the individual. The reflection here is an opportunity for the treasury to get its hands on some of that £2,735bn.
I mentioned Thatcher’s government earlier as there’s a lesson to learn from that era. Privatisation was hailed as an opportunity for ordinary working people to have a stake by holding shares, that it would reduce prices etc. Let’s just look at the power companies. These were once part of a national enterprise and owned by the people. Thatcher’s lot sold off what belonged to the nation. And as anyone will know, you can only sell off your valuables once. Spend the money and you have nothing left. The power companies are the only industry I can think of that can continually increase its profitability by simply just putting its prices up. I could think of plenty more that would go under if they tried to do the same. As I have said before, Thatcher’s encouragement to ‘get on’ meant stepping on others in order to do so. I guess only time will show whether I’ve got hold of the wrong end of this stick.