David wonders whether George Osborne’s pensions reforms will end up like Margaret Thatcher’s ‘right to buy’. David is editor of Pensions Insight and Engaged Investor
The international academics turned to the UK representative and observed: mass provision of annuities means at least your people are safe.
A day after the seminar where this exchange took place, the pensions world was very different as the government unveiled a sweeping review of at-retirement provision.
From the government’s standpoint, the advantages are clear. The Exchequer, according to the Treasury’s own calculations, receives a windfall of £1.2bn in taxes per annum thanks to the early release of pension pot funds.
The economic benefits don’t stop there. The sugar rush of retirement income will provide a boost for the UK’s fledgling economic recovery: the government has engineered a Keynesian-style stimulus that doesn’t involve any public spending.
That oft-quoted conversation about superannuation over the barbie isn’t a myth
However, the longer-term consequences are less clear cut. Giving people more control will hopefully stimulate savings rates and general financial literacy, based on the Australian experience. That oft-quoted conversation about superannuation over the barbie isn’t a myth – I’ve had one.
The liberalisation move also deals in one fell swoop with many of the issues surrounding the meagre returns delivered by small pots. On the other hand, the justification for offering long-term saving tax advantages will be hard to justify when individuals will be able to blow the lot in a heartbeat.
Osborne’s move in some ways resembles Margaret Thatcher’s decision to allow council tenants to buy their homes
Osborne’s move in some ways resembles Margaret Thatcher’s decision to allow council tenants to buy their homes. Right to buy was the encapsulation of a core Conservative idea of freedom.
While massively liberating for many individuals, it is now widely identified as a root cause of the soaring prices that mean those individuals’ sons and daughters can’t afford a place of their own.
Equally, while many will benefit from the freedom to spend their hard-earned savings when they can best use it, cash will often run out when they are no longer able to correct the situation.
Labour will not allow itself to be painted into the anti-choice corner
However, it is only if and when such chickens come home to roost that there will be any clamour to reverse George Osborne’s Budget-day move. Despite its wriggling on the issue, Labour will not allow itself to be painted into the anti-choice corner.
Like it or not, a new era in the world of workplace pensions is dawning.