Underwhelmed on pensions
What a weekend... moving cabinets and computers around the house in a desperate attempt to make it look like somewhere a potential buyer would actually want to live, rather than a mini version of MG Rover. One consequence of trying to put your house up for sale is that time to write this kind of thing comes at a premium... so I wasn't able to sit down and do any writing until half nine on Sunday night.
The BBC's headline story today has been the Tory pension proposals. These aren't too bad, but neither are they a work of genius. What we already knew before today is the headline Conservative policy on the basic state pension (BSP); they are proposing restoring the 'earnings link' whereby the pension rises with average earnings, not prices (abolished by Thatcher in 1980). The main problem with current pensions policy is that many pensioners do not claim the Pension Credit, which is the means-tested 'top up' to the BSP, and has risen a lot since 1997. Also the Pension Credit is expensive to administer and a hassle to apply for.
The Tory policy addresses the weaknesses in the current system, although only to a limited extent as the BSP would need a large one-off 'boost', and then to be earnings linked from that point on, to be an adequate income by itself for the poorest pensioners. The Liberal Democrat plan for a "Citizens' Pension", which eliminates the need for a full record of National Insurance Contributions to get the BSP, is even better, as they will pay the Citizens' Pension at the current level of the Pensions Credit (complicated, isn't it?) but only for the over-75s. In short, all the parties have been forced into some compromise by the fact that the ideal policy - a Citizens' Pension for all over 65s - would be quite expensive - and no-one wants to raise taxes.
The Tories' big new idea at today's policy launch, by the way, was some additional tax relief for basic rate income tax payers' pension contributions. As a policy, this seems to ignore the fact that pensions already attract generous tax relief - it's a bit like sticking extra tape over the hole you've already mended in your sinking boat whilst ignoring the water gushing in behind you.
Any government wanting to get serious about tackling the pensions 'time bomb' would do two things. One is to establish a 'citizens' pension' at 65, at a level at least as high as the current pensions credit, link to earnings, and raise the money required as necessary. The other would be to tackle the mess of half-truths, mysticism and macho bullshit which is the financial services 'industry'. Again and again, badly informed punters are sold poorly performing pension plans with high management charges, based on a total misunderstanding of basic financial economics but a very good understanding that P.T. Barnum would have made very big bucks if he'd plied his trade in the City rather than the Circus. Fund managers and financial advisors are one of the economy's key growth sectors precisely because they do so well out of what they cream off from the punters' investments. If the Citizens' Advice Bureaux were expanded and revamped with a basic financial advice function in addition to what they cover now - telling people to buy and hold a basic stocks portfolio, or even a tracker, starting as early in life as possible - they would clean up. Which would be bad news, on paper, for the financial services industry - but then the armistice was bad news for arms manufacturers, but that doesn't mean it wasn't a good thing. I'm now off to lose more money trading awful companies' shares in my investment club. If only I listened to Warren Buffet more...
The BBC's headline story today has been the Tory pension proposals. These aren't too bad, but neither are they a work of genius. What we already knew before today is the headline Conservative policy on the basic state pension (BSP); they are proposing restoring the 'earnings link' whereby the pension rises with average earnings, not prices (abolished by Thatcher in 1980). The main problem with current pensions policy is that many pensioners do not claim the Pension Credit, which is the means-tested 'top up' to the BSP, and has risen a lot since 1997. Also the Pension Credit is expensive to administer and a hassle to apply for.
The Tory policy addresses the weaknesses in the current system, although only to a limited extent as the BSP would need a large one-off 'boost', and then to be earnings linked from that point on, to be an adequate income by itself for the poorest pensioners. The Liberal Democrat plan for a "Citizens' Pension", which eliminates the need for a full record of National Insurance Contributions to get the BSP, is even better, as they will pay the Citizens' Pension at the current level of the Pensions Credit (complicated, isn't it?) but only for the over-75s. In short, all the parties have been forced into some compromise by the fact that the ideal policy - a Citizens' Pension for all over 65s - would be quite expensive - and no-one wants to raise taxes.
The Tories' big new idea at today's policy launch, by the way, was some additional tax relief for basic rate income tax payers' pension contributions. As a policy, this seems to ignore the fact that pensions already attract generous tax relief - it's a bit like sticking extra tape over the hole you've already mended in your sinking boat whilst ignoring the water gushing in behind you.
Any government wanting to get serious about tackling the pensions 'time bomb' would do two things. One is to establish a 'citizens' pension' at 65, at a level at least as high as the current pensions credit, link to earnings, and raise the money required as necessary. The other would be to tackle the mess of half-truths, mysticism and macho bullshit which is the financial services 'industry'. Again and again, badly informed punters are sold poorly performing pension plans with high management charges, based on a total misunderstanding of basic financial economics but a very good understanding that P.T. Barnum would have made very big bucks if he'd plied his trade in the City rather than the Circus. Fund managers and financial advisors are one of the economy's key growth sectors precisely because they do so well out of what they cream off from the punters' investments. If the Citizens' Advice Bureaux were expanded and revamped with a basic financial advice function in addition to what they cover now - telling people to buy and hold a basic stocks portfolio, or even a tracker, starting as early in life as possible - they would clean up. Which would be bad news, on paper, for the financial services industry - but then the armistice was bad news for arms manufacturers, but that doesn't mean it wasn't a good thing. I'm now off to lose more money trading awful companies' shares in my investment club. If only I listened to Warren Buffet more...
1 Comments:
This is one of the better posts so far in the blog.
You are right to criticise the pension credits - they are complex, bureaucratic and more often than not, elderly people are too scared or proud to claim them. A more cynical abuse of power would be hard to imagine - no wonder, though as several senior Labour figures have dismissed pensioners' votes as worthless as they are part of the evil 'forces of conservatism'- there can have been few more outrageous sights (yet perversely comical) than 2004's 'Council Tax revolts' wherein decorated war veterans were hauled before the courts for refusing to pay 20% plus increases in Council Tax whilst simultaneously Afghan terrorists were kept in the country in defiance of popular opinion at more than £600,000 in taxpayers' money - but I digress.
The problem with your citizen's pension is that it is expensive. Taxes are already at breaking point, and the crucial issue is how to encourage self-reliance, not add to the burden of public expenditure. I don't pretend to have all the answers but the following would alleviate the immmediate pain.
Immediate removal of all pension costs from MP's , MEPS and Senior Civils Servants. - These pensions are outrageous and often accrue after very early ages (many police retire at 50 for 'stress-related' reasons - keeping those speed cameras full must be awfully tiring)The incomes of these occupations easily enable privatre provision. In the case of former European commissioners their pensions cannot be obtained by Private Sector workers.
We need to raise the compulsory retirement age. - many people with advances in healthcare can now be economically active for longer. With demographic trends , this nettle is unavoidable, especially if we retain EU membership.
The savings incentives must be increased - the ISA limit needs to be raised to £20,000 and lower taxes must free people from state dependency and enable them to make their own private provision. I realise this runs counter to six decades of policy but if the demographic crisis and the changing global economy are not to blow the time-bomb up in our faces - stark choices need to be made.
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