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Pension reforms are vital to encourage saving. But what about everyone else?

23 March 2014

‘This reform is about treating people as adults’ — according to the Pensions Minister Steve Webb. The announcement of a pensions revolution in this week’s budget took everyone by surprise, leading to the question of whether there has been enough consultation on the changes. Webb said on the Sunday Politics today that evidence elsewhere shows the coalition is doing the right thing:

‘We know from around the world – places like America and Australia – where people already have this kind of freedoms. So we already have some things to judge by. We’re going to spend the next year talking to people working it through, including a three-month consultation. There is a lot of detail to be worked out. ‘

According to Challenger Retirement Income, Webb is right about Australia. In a 2012 survey, their research suggested 32 per cent of retirees use pension pots for buying a home, paying for home improvements or paying off a mortgage:

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As well as freeing up the market, one of the motivations behind the announcement was to tackle the fall in people saving. As the graph below shows, the amount of money saved by households (known as the savings ratio) has collapsed in recent years:

Webb said he was hopeful the pension changes would reverse this trend:

‘One of the things we know is that the economy is picking up strongly and as people have more confidence about the future, they may be more willing to consume now. So without these measures, it may well be the savings rate would have fallen further.

Clearly we do want people to spend, we want people to save. It’s getting the right balance and I think these measures reward those who save but recognises as the economy picks up will want to spend more of their own money’

But what about the other savers, those who’ve punished by the government’s unusually low interest rates? Webb didn’t deny that savers have been penalised:

‘It’s certain the case that very low interest rates have been a huge boon to people of working age with mortgages. People who are retired have said to us “yes they feel they could have got a better deal…so I think there is a recognition that whilst we’ve done the right thing for pensioners on the state pension — we’ve brought in the triple lock to make that go up at a decent rate each year — certainly pensioners have felt the hit’

He’s certainly right about that. Most pensioners will already have had to buy an annuity and will be locked in to a bad deal. For them, there is no way out. A spokesman for Legal & General is quoted to this effect in today’s Sunday Times, saying annuities “are long-term contracts with no right to surrender.” So actual pensioners who have been forced into these appalling deals have been given nothing by this budget – it’s the yet-to-retire who will be celebrating.

Webb cited the increase in the personal tax allowance as something that will help other savers — although as he tacitly admitted during the interview, the government is preparing another years of ultra low interest rates. So, good luck to anyone finding a Cash ISA that gives you an above zero real return on your savings. Savers are still being screwed, but at least the government feels a but guilty about it. An improvement, of sorts.

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Show comments
  • Jackthesmilingblack

    A Help Line to advise those with matured private pensions was mentioned. Any details?

  • rubyduck

    Speaking as someone who chose to put money into property to secure their old age, rather than avcs, which would, as it happens, have gone west with equitable life, can someone tell me why I have to pay cgt on inflation on properties held for 20+ years ?

  • Alexsandr

    you have missed one budget detail, in that peer to peer lending can now be used as the basis for an ISA, which means you can get the better ISA rates tax free.

  • BarkingAtTreehuggers

    The pension reforms encourage savings?
    We already know these reforms are merely designed to prolong desirable spending patterns. When a personal pot of assets can be raided it will be raided, with rising costs to a future generation of (increasingly foreign) taxpayers.

    • Tom Tom

      Pensions are a racket for the FIRE Sector. The rules are changed every 3 years and the suckers are locked in…….it is basically an annuity for the Finance Sector

      • BarkingAtTreehuggers

        How much time these specialists must have on their hands. Index-linking the monthly intake will take what, seconds?

        • Tom Tom

          Unclear what you are talking about

          • BarkingAtTreehuggers

            The stage prior to the annuity stage. It’s a lifelong mug’s game, not just from 55 onwards.

      • LB

        So explain why the state has no assets, and a 7,100 bn liability?

        No FIRE sector involvement at all there

        • Tom Tom

          It has no liability it cannot discharge with legislation. Spain and Ireland have already ploughed State pensions into propping up banks, Hungary too. Most countries will impose a haircut on pensions – both funded and unfunded. Portugal, Argentina, Hungary, Ireland, Spain have all used pensions to bail out banks….Britain did the same by forcing funds to buy Gilts

          • LB

            So how does it get out of the inflation linked debts by legistlation and what does that mean for the pensioners?

            Lets see. Government says we don’t pay pensions.

            Consequence, destitute pensioners.

            Great plan of yours.

            • Tom Tom

              Stuff pensioners. The State can seize whatever it wants and shed whatever liabilities it wishes. It is called POLITICAL POWER and it is ultimately absolute backed by FORCE. I doubt anyone will get in the way, they rarely do in Britain because they are windbags and moan but cannot bite

              • LB

                The problem, it can seize enough to pay the pensioners.

                It can also try and seize, but it has to become a dictatorship to do so.

                Will people get in the way? Look around the world. Plenty of people have decided that a bullet in the politicians is the solution.

                After all, if you steal the policeman’s pension, will they back you up?

                Remember, people rioted to get a new pair of branded trainers.

  • HookesLaw

    ‘the governments low interst rates’??
    What are interest rates in the USA or in the Eurozone?
    What are Norway’s rates? I’ll tell you, 1.5% – really a big difference.

    Maybe savers would prefer to be in Brazil with 10%.
    But of course the kipperesque Putin supporting tendency will all be heading towards Russia where ratres are 7%. Is anyone putting any money on the Russian economy?

    The world economy has dictated interst rates and the dire state iof the economy the govt inherited.

    • Tom Tom

      Greece offers some of the best rates on bonds and smart money is buying them. You are a dimwit

      • LB

        Really? There is a credit risk involved in lending to the state. If your NI goes to the state and the state promises you a pension, then you’re a creditor of the state.

        The problem is that the state can’t pay the pensions. Too big and unlike fixed rate debts where it can print to pay, the pensions are inflation linked. It can’t print to pay any more than it can print tins of beans,.

        • Tom Tom

          You cannot be a creditor of The State when you pay taxes, the notion is absurd

          • LB

            Of course you can.

            Next you will be telling us that the civil service pensions aren’t going to be paid, because they aren’t a debt.

        • Alexsandr

          there is no contract with the state to pay pensions. If the government so decides it could stop paying state pensions and there is nothing anyone could do about it.

          They have already stolen my graduated pension and SERPS. I fully expect them to renege on my state pension.

      • Fergus Pickering

        Presumably Greece offers high rates on its bonds because nobody wants them. Never mind, Tom Tom, you go ahead.

        • Tom Tom

          Go and tell that to Dan Loen and his Third Point Hedge Fund who made
          $500 million. Sounds like you have no idea about finance Fergus

          European Central Bank made 555 million euros ($732 million) last year
          from Greek sovereign bonds acquired under its first bond-buy plan, a sum
          that suggests billions in profits from the program could be passed on
          to Athens. The ECB’s
          profit implies that the whole Eurosystem – the
          ECB and the 17 national central banks in the euro zone – could
          altogether have made billions from the Greek sovereign bonds.”

          • Fergus Pickering

            Not the slightest idea, Tom Tom. I hope you got rich also.

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