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Category — UK Economy and Economic Policy

Budget Comments

8 March 2017

Another missed opportunity to start addressing social care

  • No new incentives for social care savings and radical reform proposals pushed into Green Paper later this year
  • No proper help for savers – new NS&I bond pays interest rate lower than inflation, so savers lose money
  • Costs of public sector pensions will rise sharply, by nearly 40% between 2015 and 2020
  • Self employed bearing brunt of tax rises to pay for other measures

Addressing Social care crisis:

  • Extra £2billion for social care will help councils but may not be enough to ensure NHS pressures really relieved.
  • No new help or incentives for families to save for social care or use their ISAs and pensions.
  • More money for councils to cover costs of social care is good, but proper reform delayed – more money is just a sticking plaster on a weeping wound.
  • Will be a Green Paper later this year on radical structural long-term reform. That’s good but needs to be followed by urgent action as care system is breaking the NHS. Integration of health and care, helping families prepare for care costs, finding ways to recover extra money to pay for care – all these are essential as our population ages. The number of people over age 75 will increase by 2million in next 10 years.
  • No help for families to start saving for care – no incentives to help them save even though ‘death tax’ ruled out so can’t take money from their homes or estates.

 

Measures for savers

  • No new help for savers even as savings ratio reaches such low levels
  • New NS&I bond pays only 2.2% interest while inflation forecast to be 2.4% this year and 2.3% next year, so savers lose money in real terms each year

 

Helping people extend working lives

  • The Chancellor has announced £5million extra money for returnships for adults trying to get back into work. This is potentially good news for older people and other adults trying to return to work, especially helping many older women and carers who want to work after taking time out for caring. Of course, more is needed but this is a start. For example, if each returnship costs £250, this can help 20,000 people.

 

Pension matters

Pensions flexibility is raising far more money for Treasury than originally forecast.

  • Treasury expected pension flexibility to raise £0.3bn in 2015-16 and £0.6bn in 2016-17, but people have taken higher amounts out than previously forecast, so actual tax receipts were £1.5bn in 2015-16 and £1.1bn in 2016017. One cannot draw many conclusions from this as we do not know what the people who withdrew money will be doing with it – whether they have other pensions elsewhere and are repaying debts and so on. The Government needs to conduct some proper research into what people are doing when withdrawing pension money. Expected revenues from pension flexibility rules are expected to be £1.6bn in 2017-18 and £0.9bn in 2018-19. Again, we cannot draw firm conclusions without further information.

 

Costs of public sector pensions set to rise sharply.

  • The Budget figures list the costs of public sector pensions as follows. In 2015-16 the cost was £11.3bn but by next year that will have risen by over 20% to £13.7bn. By 2021-22, the cost is forecast to rise to £15.7bn, which is an increase of 39% over the 2015-16 level.
  • 2015-16 £11.3bn
  • 2016-17 £11.5b
  • 2017-18 £12.1bn
  • 2018-19 £13.7bn

 

Overseas pensions:

  • The Government is continuing its clampdown on overseas pensions. Anyone who wants to move their UK pension offshore into a ‘Qualifying Registered Overseas Pension Scheme’ (QROPS) will have to pay a 25% tax charge on the funds transferred, and also any payments made from the QROPS in the first five years after the money is transferred will be taxable in the UK.

March 8, 2017   1 Comment

Despite advances in equality, there’s still huge gender divide in pensions and care

6 March 2017

  • International Women’s Day celebrates women’s progress but more to do
  • Too many women still losing out in pensions relative to men
  • National Insurance still penalises women – including in State Pensions
  • Lower lifetime earnings leave women with lower private pensions too – older women particularly at risk

Older women have achieved improved equality, pay and maternity rights for today’s younger women:  As we celebrate International Women’s Day on March 8th, spare a thought for current cohorts of women coming up to or just reaching retirement.  Throughout their lives, they have paved the way for younger women, as they fought for maternity rights and equal pay, as well as battling gender discrimination in other areas of the workplace.  Female employment conditions are vastly better nowadays than when the babyboomer women were starting out.

But women still losing out in both State and Private pensions:  There remains a significant – albeit narrowing – gender pay gap especially for older women, and one area where all women still lose out relative to men – and always have done – is in pensions.  Women are still very much the poor relations when it comes to pensions. Both for state pensions and private pensions, women’s prospects are worse than men’s.

Mums are supposed to get credit for State Pension when looking after young children:  Mothers who stay at home to look after their young children are supposed to be eligible for credit towards their State Pension, so they do not lose out while bringing up their family.

But new unfairness in National Insurance denies State Pension rights to many women:  In fact, brand new unfairness has recently been introduced into our National Insurance system that will penalise many younger women.  The recent decision to deny Child Benefit to families where one partner earns more than £60,000 has a little-known side-effect of stripping many middle class women of their State Pension entitlements.

Mothers have to claim Child Benefit even though they know they’re not entitled to it: The credit for State Pension is only automatically added to their National Insurance record when they claim Child Benefit.  Those mothers who know they are not eligible for Child Benefit because their family income is above the limit are actually supposed to apply for the benefit anyway, in order to get homecare credit for their State Pension.

If they don’t claim the Child Benefit they’re not entitled to, they can’t backdate it:  Firstly, it seems ludicrous to expect women to apply for a benefit they know they are not entitled to.  But more importantly, if these women discover that they have lost their State Pension credit, they cannot claim it later.  The new rules mean women can only backdate a claim for three months, otherwise that pension year is lost for ever.  If they have not claimed within the three month window and find out about this later, the Government does not allow them the credit.

Classic example of State Pension penalising women and not recognising their lives:  Clearly, the State Pension system is not designed with women in mind.  Women’s lives are different, due to their social and family roles and our pension system must make proper allowance for this.  It’s no use saying they will be credited and then preventing them from receiving the credits with new, complex rules.

Further injustice for low earning women who also get no National Insurance credit for State Pension and Government refuses to help:  There are other ways in which women lose out on their State Pension too.  The National Insurance rules penalise low earners and those with several low paid jobs.  These are predominantly women.  Mothers who stay at home to care for children can get credit to National Insurance.  Those who work part-time and earn more than £5824 a year but less than £8060 are also credited with a year on their National Insurance record, but do not actually have to pay National Insurance.  However, if they earn less than £5824 a year in one or more jobs, they get no credit for National Insurance at all.  The Government has known about this anomaly for years, and has refused to address it.  I tried, as Pensions Minister, to persuade the Treasury to at least allow these women to claim National Insurance credits, or to reduce the minimum earnings level to ensure that those women who are working are not treated worse than those who stay at home.  So far, Ministers have refused.  This is unacceptable.

More women are single nowadays so can’t rely on partner’s State Pension:  As increasing numbers of retired women are single or divorced, they have no husband’s pension to rely on and need their own pension.  So receiving less State Pension is of great concern, particularly as they also have much lower private pensions too.

Lower earnings, interrupted careers, caring duties mean less private pension:  As women are the prime carers for both children and adult loved ones, women’s lower lifetime earnings mean their private pensions are lower.  They are often left out of workplace pensions and have less income to devote to saving.

Auto-enrolment leaves out millions of women:  Even in the new auto-enrolment programme, far more women are left out of workplace pensions than men.  Anyone earning less than £10,000 a year (mostly women) does not have to be automatically enrolled into a pension and will not get the benefit of their employer contribution.  If they are in more than one job, but each pays below £10,000 they miss out altogether on the behavioural nudges that have been so successful in widening private pension coverage recently.  Low earners can request to be enrolled, but of course that is far less likely due to the very inertia that auto-enrolment is designed to overcome.

Older women faced short-notice changes in State Pension age that caused hardship:  Overall, the inequalities paint a bleak picture for women’s retirement income.  The Government also increased the state pension age for older women, giving many of them insufficient time to prepare.

Women continue to struggle to match men financially:  Between balancing their careers, looking after children and caring for elderly parents women are being squeezed from every angle.  Those in their 50s and 60s have particular difficulties, but younger women face penalties too.

Social care crisis disproportionately affects women:  The crisis in social care hits women hardest.  It is wives, daughters and sisters who usually bear the brunt of caring responsibilities, sacrificing their own income for the sake of their loved ones.  This leaves women less prepared to fund their own care needs and women are much more likely to live longer than men and be on their own, so will spend more money on care in later life than men.

Great strides have been made, but big divides remain:  Life in Britain today still leaves women worse off than men, particularly as they get older.  Although women have made enormous strides pushing through glass ceilings in the workplace, the gender pay gap remains and there is still a significant gender divide in pensions and care.  More progress is needed to reduce women’s disadvantages in 21st Century UK society.

March 6, 2017   2 Comments

Tata Steel – what happens to the British Steel Pension Scheme?

7 December 2016

Common sense prevails at British Steel – jobs secured

  • But not clear what will happen to British Steel’s 130,000 member pension scheme
  • New pension scheme seems generous compared to average UK schemes nowadays
  • But Tata says old British Steel scheme will be ‘de-risked’ and ‘de-linked’ – could mean going into the PPF or could mean standalone
  • Ongoing negotiations with the Pensions Regulator likely and no details yet available

 Saving jobs is so important for South Wales:  It is great news that the unions and Tata Steel have reached an agreement that could secure jobs and steel production at Port Talbot’s blast furnaces for years to come.  That is really important to the people of South Wales and it seems the unions have worked really hard to preserve the industry that is so important.  But this is all subject to consultation so it must still be ratified by the workforce.

Job security vs. pensions:  The job security and new investment in the business seems to have come, however, partly as a consequence of changes to the pension arrangements enjoyed by the 130,000 British Steel Pension scheme members.  By closing the scheme and looking to change future arrangements, Tata’s burden of ongoing pension contributions could be reduced.

Close DB scheme and start generous new DC scheme: The proposal is that the final salary-type pension scheme will close and all workers will be moved into a new pension arrangement.  This will be a Defined Contribution scheme, which means the employer no longer shoulders the risks involved in long-term pension provision.  The terms of the new scheme, negotiated hard by the unions, are relatively generous.  They will offer up to a maximum 10% employer contribution with 6% from employees.  The legal minimum is far lower (currently 1% each from employer and employees, rising to 3% from employer and 5% from employees by 2019).

But not clear what happens to existing British Steel Pension Scheme – still waiting for Consultation Response:  It is not clear, from today’s releases, what will be happening to the existing final salary pension scheme.  Will benefits be reduced by going into the Pension Protection Fund?  The Government consulted earlier this year on changing the law to force through significant cuts to the full benefits promised to current and past workers.  For Government to do this, for just one scheme, would have set a very dangerous precedent for all other private sector schemes.  We still have no confirmation of what will happen, even though it was rushed through as an emergency measure during the Referendum campaign last summer.  We still do not know when there will be an official response to this consultation.

Probably still negotiating with the Pensions Regulator – will scheme enter the PPF?:  The fact that there has been no announcement from the Government, and the wording of the statements today from Tata and the unions, suggest that no resolution for the British Steel scheme has yet been agreed.  The wording used is that the scheme will be ‘de-risked’ and ‘de-linked’.  This could mean that the scheme is heading for the Pension Protection Fund after all, but the trustees may also still be negotiating for a different outcome.

RAA would allow business to separate from pension scheme:  The Regulator does have the power to permit Tata Steel, the employer, to keep running the Port Talbot blast furnaces, but without the burden of the DB pension scheme  – and the scheme would enter the Pension Protection Fund.  This could represent the scheme being ‘de-linked’ and ‘de-risked’.  Such flexibility for employers who are in trouble is a long-standing feature of our pension system.  It helps firms who genuinely cannot afford to meet their pension liabilities but want to preserve jobs and keep the business going.  To allow Tata Steel to continue running the steel business but not have to support the old pension scheme would require a deal with the Pensions Regulator and the PPF Lifeboat Fund, an RAA or ‘Regulated Apportionment Arrangement’.

Or will Regulator allow a standalone scheme:  However, there is also a suggestion that the trustees are still looking for the scheme to be allowed to run on as a standalone scheme without actually going into the PPF.  This was the original premise of the Consultation but would require huge reductions to past benefits and would also involve ‘de-linking’ the scheme but it is unlikely to be completely ‘de-risked’ since the trustees would still need to earn investment returns over time to help meet the liabilities.  It could be a very different outcome for members from PPF entry and was another of the options suggested in the Consultation.  This would mean the scheme may not enter the PPF, but would stay outside it, with the trustees continuing the run the scheme on a low-risk basis, trying to ensure it has enough money to pay the pensions as they become due.  Whether or not they would be able to pay full benefits, or reduced benefits may also be part of ongoing discussions.

Key question – what will happen to guarantees given by Tata Steel to £15billion pension scheme?:  The future of the British Steel Pension Scheme may lie in the hands of the Pensions Regulator and the PPF – unless the Government does actually tear up pensions law for Tata – this seems less likely.  Which outcome is achieved, will also partly depend on what happens to the generous guarantees  that Tata Steel has offered to the pension scheme in the past.  It has been reported that a share of Tata Steel assets were pledged to the scheme trustees instead of pension contributions, in order to improve the deficit position of the scheme in past years and to provide extra funding if the scheme was in trouble.  If those assets are included as part of the pension assets, then the trustees may believe they have enough money to run the scheme on a self-sufficiency basis.  It may also, however, be part of the negotiations with the PPF and Pensions Regulator in order to agree an RAA deal.  Such negotiations are always complex and we await further details with interest.

So it’s great to see jobs secured and we await further details about the future of this major UK pension scheme.  The Pensions Regulator must ensure that it does its best to protect the PPF and the integrity of our pension system.

December 7, 2016   No Comments

Autumn Statement has a bit of good news for savers

23 November 2016

  • Autumn Statement is missed opportunity to address social care crisis
  • State Pension triple lock seems under threat
  • Chancellor confirms intention to ban pension cold calling

The Chancellor’s Autumn Statement had no real surprises for pensions or savers.  There are some tweaks to pension rules, but the biggest disappointment for me is that there is no acknowledgement of the social care crisis.  The Chancellor started by saying the aim of his budget is to prepare and support the economy for a new Chapter.  Part of this new chapter includes the aging of our population.  This is a huge social issue as baby boomers reach their 60s and are heading for longer lives than previous generations.

I’m delighted to see a greater sense of urgency for new infrastructure and housing investment, this is vital for the future success of our economy.  I hope that our own long-term domestic investment funds – in particular pension funds and insurance assets – will be brought into Government to ensure they can participate in such investments.  However, it is really disappointing that there were no new savings incentives to help families set money aside for social care and not enough extra public funding to ensure decent care can be delivered to those elderly people who are currently denied the help they need.

Here is a summary of the measures and my thoughts:

  • Chancellor has not recognised the scale of the challenge the country faces in social care

The Chancellor has missed an opportunity to really signal that the Government cares about the social care crisis.  The country has no money set aside for elderly care – families do not even know that the NHS cannot be relied on to provide care.  The NHS will step in under some circumstances, but most families will find that they have to fund care themselves.  If they don’t have any savings, then they will be at the mercy of cash-strapped councils who are cutting back care provision and provide only a bare minimum.  New savings incentives for social care are needed urgently, not just to ensure at least some families will save for care, but also to help people realise that they need to think about this.  The NHS does not and cannot look after increasing numbers of older people from cradle to grave.  In an aging population where it is estimated that over 1million older people who need care now are not getting it.  Without more funding this can’t be delivered.  Allowing councils to raise an extra £2billion in council tax for care by 2020 is simply not enough.  The needs are higher than that already and the problem is only getting worse.  Employers could be incentivised to help workers with care savings plans, perhaps with elderly care vouchers but currently there is no help at all for employers or employees to provide for future care needs.  This will have spillover effects on our precious NHS, because we can’t cut social care without hitting NHS.  So taxpayers will keep having to put more money into the NHS if there is not extra funding for social care.

  • Good news for pensions – Government will consult on banning pension cold calling and further measures to crack down on pension scams

It is great to see that the Chancellor has confirmed he will consult on banning all cold calling for pensions and also look for other ways to clamp down on pension scams and frauds.  This is most welcome.  By making pension cold calling illegal, it will be much easier to help people understand that those who do contact them out of the blue about their pensions are acting against the law.  We must do as much as we possibly can to protect people’s precious pension savings.

  • Triple lock looks under threat beyond 2020 – watch out for more developments

The Chancellor’s speech signalled pretty clearly that the State Pension triple lock is only safe until 2020.  He talked about the need to adjust to rising longevity and alluded to a review of State Pension uprating.  Currently, the law only requires Basic State Pensions and new State Pension to be uprated in line with earnings after 2020.  I would like to see a double lock announced, whereby State Pensions would rise in line with either earnings or prices.  Currently, the Additional State Pensions only rise in line with prices.  Perhaps the Government could consider increasing all aspects of state pensions in line with a double lock to simplify the system.

  • Reduced Money Purchase Annual Allowance cut from £10,000 to £4000. Why not to £3,600?

The Chancellor will reduce the amount of new money someone over age 55 can contribute to a pension after they have already taken some money out of past pension savings.  Currently, those who have already taken money out of their pensions under so-called ‘flexible access’, can put a further £10,000 a year into new pension savings and get tax relief on that.  The Chancellor plans to reduce that to £4,000 a year instead. This will raise revenue for the Treasury, but it does seem a shame that he did not decide to just reduce the new MPAA to £3,600 a year, which would align it with the maximum amount that non-taxpayers are allowed to pay into a pension with a 25% bonus of basic rate tax relief being added.

  • Encourage British pension funds and insurers to invest in infrastructure and social housing

The Chancellor has announced that it will extend the UK Guarantees Scheme for infrastructure bonds and loans and that it is working with ‘industry’ on construction-only guarantees.  I do hope the new Ministerial group on delivery of infrastructure projects will work closely with UK pension funds and insurers so that British people’s pensions and long-term savings can help fund long-term improvements in the British economy

Good news for savers:

  • A new 3-year NS&I savings bond with market-beating interest rate of 2.2% from next Spring

It is really important to encourage more people to save and these bonds will be of some help to savers who have lost out from Bank of England’s policies.  The Chancellor plans to bring back the special savings bonds that were offered to the over 65s before the 2015 General Election.  This will allow anyone over age 16 to put up to £3000 into a new National Savings and Investment product that will pay 2.2% interest.  It will be available for 12 months from next Spring.  This will help some savers who have suffered so much for exceptionally low interest rates.  There are already tax breaks for savers, who can earn up to £5,000 a year in savings income tax free but the interest rates on savings accounts have fallen so low that savers need more help.

November 23, 2016   No Comments

Pension consequences of QE could undermine policy intent

4 August 2016

  • Further pain for UK pensions as QE worsens deficits and increases annuity costs
  • Bank of England statement completely ignores pension impacts of its policies
  • Estimates suggest deficits now approaching £1trillion – this cannot be sustainable
  • Government needs to consider help for employers

Today’s decision by the Bank of England to cut short-term interest rates and expand the QE programme is another blow for UK pensions.  Both defined benefit and defined contribution pensions have become more expensive as rates keep falling.

Lower rates make pensions more expensive:  The amount of money that is needed to pay promised pensions over future decades depends on how much return one is expected to earn on the money set aside for pensions right now.  The lower the future expected returns, the more money must be put in today.  The cost of pensions, whether Defined Benefit or Defined Contributions, ultimately depends on the returns on gilts.  As gilt yields fall following QE, annuity rates fall and pensions become more expensive.

Rises in asset prices don’t offset rise in the liabilities so pension deficits worsen:  The sensitivity analysis shows that every one percentage point fall in long gilt yields will increase the average pension fund’s liabilities by 20%, while its asset values will only increase by around 7-10%.  Therefore, as gilt yields decline, pension deficits increase and any rise in asset prices is less than the rise in the liabilities or annuity costs.

Deficits are approaching £1trillion:  Hymans Robertson estimated that deficits of UK final salary-type schemes post-Brexit had risen to £935billion.  A further fall in interest rates as a result of today’s Bank of England announcement will see this figure increase further towards the £1trillion mark.  The value of liabilities, as measured at today’s interest rates, is well over £2trillion.

This damaging side-effect of monetary policy means bigger burdens on UK employers:  The consequences of rising deficits are that employers struggling to support these schemes face pressure to put in more money.  The more money they put into the pension scheme, the less they can spend on supporting their operations.  This undermines the aims of QE which is meant to stimulate the economy as this supposedly expansionary policy weakens the ability of the employer to grow its business.  So monetary policy that is meant to boost growth has a damaging side-effect that can undermine companies.  Ultimately, more employers may fail as pension deficits balloon.  That would mean pension scheme members enter the PPF and their benefits are not paid in full.

Trustees caught between a rock and a hard place – need to take more risk, but expected to take less:  Trustees of pension schemes, whose deficits keep rising, are facing almost impossible investment dilemmas.  They are locked into a vicious circle and struggle to break out.  If the scheme deficit has risen, trustees need to consider asking the employer to put more money in to fill the shortfall.  But if the employer has already put huge sums in or cannot afford to do more at the moment, then trustees ideally need to find other ways to reduce the deficit.  This means achieving better investment returns or reducing the benefits (which is not normally allowed under UK pensions law unless the employer is about to go bust).  So trustees would in theory need to take more investment risk, buying assets that can be expected to outperform their liabilities, to reduce the deficit over time.  However, in practice, trustees are usually advised to take less risk, not more risk, if the employer is considered less able to fund the deficit.  They are told to ‘de-risk’ by buying assets that better match their liabilities.

‘De-risking’ becomes a vicious circle that ultimately increases risk of failure:  Trying to ‘de-risk’ generally means buying gilts (or other high quality bonds or hedging), since these are supposed to better match the performance of the schemes’ liabilities.  As liabilities are calculated with reference to gilt yields (conventional actuarial basis) or AA corporate bond yields (accounting measure), gilts and bonds are considered the assets that will best match the liabilities.  But buying more gilts or bonds will, at the margin, force yields down further, especially in light of further QE (buying £50bn of gilts and £10bn of corporate bonds).  Trustees will be competing with the Bank of England for scarce assets and pushing yields even lower and their scheme deficit will keep rising – a classic vicious circle.

Need to outperform liabilities, not just match them and gilts are not a perfect match anyway:  In practice, although gilts and bonds may be a closer proxy for the liabilities than other asset classes, they do not actually match liabilities properly.  There will still be duration and inflation mis-matching, as well as rising longevity, so even buying gilts may not prevent a rising deficit.  And there is a further problem.  If the employer cannot manage to meet the deficit payments, the trustees really need to invest in assets that will outperform the liabilities, not just match them, which means taking more risk, not less.  They seem caught in a trap at the moment.

Index-linked gilt yields are negative so trustees already face deflation:  Pension schemes are facing a further dangerous dilemma in addition to the pure interest rate impact on their liabilities.  Index-linked gilt yields have been negative for some time and the more negative the index-linked yield becomes, the more impossible it is for pension schemes to match their index-linked liabilities over time.  There are no ‘safe’ assets that pension trustees can buy to match their inflation increases.  This further drives them to need to take investment risk.  Indeed, this is what the Bank of England specifically suggests it is expecting, however pension schemes have been unable to do so because they are frightened of the employer position weakening further.

 

Bank of England seems oblivious to the pension impacts of its policies:  This is what the Bank said today:  “The expansion of the Bank of England’s asset purchase programme for UK government bonds will impart monetary stimulus by lowering the yields on securities that are used to determine the cost of borrowing for households and businesses.  It is also likely to trigger portfolio rebalancing into riskier assets by current holders of government bonds, further enhancing the supply of credit to the broader economy.”  There is no mention of the effects of this policy on pension funds.  In fact, if pension funds are unable to move into riskier assets, the policy is actually going to damage growth in some cases, rather than boost it.  Weakening parts of corporate UK is hardly helping the economy.  Monetary policy is also risking poorer pensioners in future via the impact on annuity costs.  Thankfully, DC pension investors are no longer forced to annuitise too soon if they would rather wait.

 

Government must address these pension problems urgently:  The Government has given some relief to DC scheme investors with the freedom and choice reforms.  DC savers are no longer effectively forced to buy an annuity if they want to take just a small amount out of their fund.  However, there has been no such relief for employers.  If the Bank of England ignores the effect of monetary policy on pension schemes, Government and the Pensions Regulator need to take the issue more seriously.  So far, very little has been done to address the stress on employers.  I had started some work on this but it did not receive sufficient attention and is even more urgent in light of today’s announcement.

 

Trustees and employers seem frightened to use flexibilities already built into UK pension system:  The UK pension system does have significant flexibilities which could help employers and trustees cope with difficult circumstances, however there seems to have been a reluctance to use the leeway designed to alleviate these burdens.

 

Must not just help one favoured scheme:  The problems of Tata Steel and others have highlighted how many big businesses are simply unable to afford paying the full pension promises at current interest rates.  The costs have mushroomed out of all proportion to previous expectations.  The British Steel consultation proposed law changes to allow its trustees to cut members’ benefits without consent and even to make them worse off than going into the PPF itself.  I believe this would be unwise and set a dangerous precedent.  Rather than trying just one favoured employer, the Government needs to look at the whole system.  How can employers and trustees manage their liabilities in the best long-term interests of the both the members and the business in light of QE?  Too much comment seems to focus on the apparent funding levels as measured today, rather than ensuring the strength of the sponsoring employer to back the scheme in future decades.

 

In danger of making the best the enemy of the good:  Liability management exercises, scheme pooling, longer recovery plans, member consent to benefit changes and benefit streamlining are all possible methods of managing liabilities over time in more affordable ways.  Encouraging members with small entitlements to transfer to DC schemes and facilitating small benefit changes such as a statutory over-ride for schemes that need to change the inflation measure used for uprating could provide much-needed relief for many schemes.  Offering pension schemes favourable terms for investing in infrastructure and social housing projects could also provide some upside for pensions while boosting the economy.  It is time the authorities addressed the serious side effects of monetary policy on UK pensions before more schemes fail.  I was working on these issues but there was no sense of urgency, I hope that the new Government will take this matter more seriously now.

August 4, 2016   2 Comments

Social revolution underway as millions more over 50s keep working

28 July, 2016

  • Important new Statistical Series released today to track trends in later life working
  • Massive increase in labour force participation for over 50s since the 1980s
  • Older women show largest employment rise while proportion age 70-74 in work has doubled
  • Rise in female participation pre-dates increase in state pension age

There is a social revolution underway, which can benefit millions of people in the UK, which is seeing increasing numbers of over 50s stay in work, continuing to increase their lifetime income, improving the productive potential of the economy and in many cases ensuring a better quality of life.  As older men and women realise it is not beneficial to aspire to retire when still relatively young, the trends in employment among people over age 50 are striking.

The DWP has today released figures that will form a brand new data set for the future.  They will track the trends in later life working and help us monitor how the world of work is developing for the over 50s.  The new statistical series shows changes in employment trends for women and men since the 1980s.

Following my role as the Government’s Business Champion for Older Workers and Pensions Minister, I have instigated continued statistical analysis of employment trends and engagement with business to help more people and employers benefit from the skills and experience of the more mature workforce that is on offer with an aging population.  The statistics released today demonstrate the historical trends that have seen sharp increases in number of over 50s staying in work.

This is all part of a much wider exercise in encouraging people to keep working, if they can and if they want or need to, and encouraging employers to recognise the enormous value that older workers offer to their businesses.

People are not necessarily ‘old’, in a conventional sense, at age 50, 60 or 70 and are increasingly choosing to keep working.  This can be good news for them, good for their employer and the economy too.  It will boost their lifetime income and can also be better for their health and general wellbeing.

Of course, it is also true that some people cannot work longer, or feel forced to go on when they would rather stop, but this is the minority.  Surveys that were part of my Business Champion for Older Workers report ‘A new vision for older workers – Retain Retrain Recruit’ showed that most people in their fifties want to keep working past their state pension age.

In 21st Century Britain, after all the successes in healthcare and working conditions, it makes sense to celebrate the increased employment of older people and to take advantage of the skills and talents of our aging population.

July 28, 2016   1 Comment

Pensions are too important to downgrade

18 July 2016

  • Potential dangers ahead for pensions if responsibility moves from DWP to Treasury
  • Could be threats to auto-enrolment
  • Must continue to address employer challenges in funding Defined Benefit schemes

It would seem that the role of Pensions Minister is being downgraded by the new Government.

What does that mean?

At the moment, we just don’t know, however it could be that this poses threats to future pensions and we must be alert to the dangers.  Pensions are vital for the long-term future of millions of people in our country.  We are in the middle of a major programme of reform and it needs to be guided carefully, otherwise there are dangers that pensions policy could be derailed.

What are the risks of downgrading Pensions in DWP?

Pensions Bill:  The recent Queen’s Speech contained provision for a Pensions Bill, which I fought really hard to obtain.  It is designed to protect pensions.  Currently, people’s pensions are at risk if the trust-based DC pension scheme they are saving in winds up.  I do hope the new Government will not put these important measures on hold.  Members’ pensions are not safe and the protections should have been put in place long ago, they are urgently required.  The new Bill would also introduce a cap on the exit charges on members’ funds when they want to move from one scheme to another.  At the moment, members can lose over 5% of their money just because they need to move scheme.  The new law would cap those charges at much lower levels.

Auto-enrolment:  Currently, policy responsibility for auto-enrolment lies in the DWP.  If the Treasury takes this over, there are risks to the programme.  Auto-enrolment is working really well, as millions of workers are saving in pension schemes for the first time, with the help of their employer.   We are establishing as the norm that every employer is expected to provide a pension for their staff.  This is a major change but is an essential part of the radical pension reforms that are underway.  The new state pension will have no more earnings related elements building up, so all the earnings linked retirement income must come from private pensions or other assets.  We must not let the EU referendum fallout derail this vital programme.

Defined Benefit Pension schemes:  At the moment, the DWP is responsible for our system of pension protection and there are over 11 million workers saving in Defined Benefit schemes who need a robust protection framework.  Funding levels of many schemes have deteriorated sharply, despite employers putting significant sums into them, and the Government urgently needs to address the challenges facing trustees and employers in connection with meeting their pension promises.  Work is already underway in the DWP which I had initiated last year and accelerated recently, but it is complex and needs careful handling.  A new Pensions Minister needs to engage with this work and manage the issues surrounding the British Steel pension consultation and the knock-on effects on all other schemes.

Pension Wise:  Responsibility for Pension Wise recently moved from Treasury to the DWP, to ensure all publicly-provided pensions guidance is located in one place.  As DWP was already responsible for the Pensions Advisory Service (TPAS), it made sense to put Pension Wise and TPAS together and form a new guidance body to help people engage with planning their later life income.  This was also due to be in the new Pensions Bill and I do hope it goes ahead, even if based within Treasury again, rather than DWP.  The public need help and guidance to understand how to plan their retirement income and customer satisfaction with the Pension Wise service has been very high.  The new Government must not let this be a casualty of the recent political upheavals.

Bringing private pensions policy under one roof

Last week I suggested to Number 10 that I would be delighted to help the new Government with a radical overhaul of pensions policy responsibility.  This could see all private pensions policy joined together in one place, under a Minister in the Treasury, while State Pension policy stays within the Department for Work and Pensions.  Indeed, I proposed this to David Cameron last year after he asked me to be Pensions Minister but he decided against it.

I think it makes sense for private pension savings policy to be run in one place, rather than being split across Departments.  I would have been happy to do that in the new Government but only based in the Treasury, not the DWP.  I wonder if there may be a move in that direction?

Why would it make sense?

As the new state pension means an end to contracting out, the role of the DWP in private pensions is much reduced.  Under the old system, millions of people were building a part of their state pension in a private pension scheme, paying lower National Insurance in exchange for giving up rights to part of their state pension.  This policy has ended, so the state and private pensions are now totally separate.  Therefore, it might be a good time to merge private pension policy together in one place rather than having contract-based private pensions policy resting in the Treasury, while trust-based pensions policy is made in DWP.  There are currently two different regimes, one for pension schemes set up under trust and one for pension schemes that are under contract law.  Bringing these policies together could help streamline and rationalise the rules, although there would be enormous complexity in doing so.

July 18, 2016   2 Comments

My warnings in 2006 about excess public spending – the irresponsibility was clear even then

It is simply incredible to deny that the Labour Government spent too much

Failure to recognise or admit past over-spending is deeply worrying

This is an article I wrote in 2006, exposing the excessive Government spending under Gordon Brown. It was clear to me even back then, and is still clear now, that the Government was spending far too much. I warned that this was the wrong policy, but it continued.   Ed Balls and Ed Milliband were in charge alongside Gordon Brown at that time, presiding over this huge rise in public sector spending. The ONS figures in my article showed the spending was on consumption, not investment.  Please look at the table, which highlights the enormous increases in Government spending that occurred from 1999 onwards. It is astonishing that Ed Milliband refuses to admit or accept these mistakes.

The Government was spending far more money than the country could afford and continued doing so, despite good growth in the economy.  I warned that this was dangerously short-sighted, especially in view of the aging population which meant we needed to be saving more, not increasing borrowing.

The Labour Government did not understand how to control spending taxpayers’ money.  Taxpayers were working hard, paying their taxes and trusting the Government to spend that money wisely, yet unfortunately, despite constant talk of being ‘prudent’ and ending ‘boom and bust’, Labour actually spent far too much, not on investing in our future but on increasing public sector employment and pay and expanding tax credits, rather than trying to ensure a thriving private sector to boost growth.  With such enormous debts having been built up, it is vital that the private sector creates growth and employment to help repay past overspending.  The arguments that we have to end ‘austerity’ seem to suggest that we are living in a world where the ‘deficit problem’ is solved and hard-working taxpayers can support ongoing rises in spending despite the massive national debts that were left in 2010.  This is just not true.

The ONS stopped producing the Government consumption series after 2004, but excessive Government spending continued right up to the financial crisis, which left us without any reserves of taxpayers’ money to deal with the economic downturn that ensued.  Labour handed over in 2010 saying ‘there is no money’ – if only they had been more prudent, as they promised to be.  The same people who were in charge at the time are promising the same again, they seem to have learned little since then.  It is worrying that Ed Milliband has refused to admit Labour spent too much.  Furthermore, in 2012, he praised the Socialist policies in France which promised to increase taxes and Government spending.  Those policies have left the French economy with massive unemployment and negative growth.

By contrast, the UK economy has had good growth and a huge fall in unemployment, driving better prospects for the vast majority of British citizens.  It is a slow process to recover from such a major crisis, while also trying to deal with past debts, but the Government since 2010 has steered a path to ensure job creation is a priority while also being careful with public spending.  That’s not easy and they won’t always get it right, but it is vital to have that aim.  The millions in the middle, who want to work, also want to know the Government won’t be imprudent with their money again.

We need to face the truth.  I have voted Labour in the past many times, but I truly believe that the risk of putting Labour and the SNP in charge of our public finances will mean more borrowing that our children will have to repay and more spending in Scotland at the expense of England, Wales and Northern Ireland.  If the past over-spending is denied, then what will stop the same thing happening again?  To suggest that we can ignore the public sector debt and once again go back to spending money we don’t have is an illusion.

I do hope that the ordinary, sensible members of the British public will see the dangers and not take that risk.  The country is at a cross-roads, it’s time to decide whether we continue with policies that are trying to ensure job creation and private sector revival, or return to the old days of tax and spend to excess.  We shall have to see what the people decide.

Here is the article I wrote in 2006, please have a look at it and especially the figures for Government spending:

Demographic dangers for growth – Brown has been imprudent

Sunday Telegraph, Economic Agenda Column, published 27th August 2006. Edited highlights

full article link here: http://www.telegraph.co.uk/finance/2946231/Economic-Agenda-Why-Brown-has-been-imprudent.html

The UK economy has performed impressively for an extended period of time and the Treasury has received praise for this achievement.  There has been much debate about the underlying causes of this sustained growth and whether it really is evidence of prudent economic management, but one factor which has not been greatly explored is the contribution of demography.  In fact, the economic effects of demographic trends are worth more serious consideration.

During the 1980’s and 1990’s, the economy benefited from a significant rise in the number of people of working age.  At the same time, the birth rate fell sharply so there were fewer children to support.  In addition, the number of pensioners has been relatively stable.  The fall in number of dependents and rising numbers of workers helped sustain consumption and bolster growth, giving a very favourable underpinning to economic performance.

This demographic boost, however, is soon set to unwind.  From 2010 or so, the number of pensioners will increase sharply, while the number of workers falls, so the proportion of the population in employment is forecast to decline.  As more people try to live on pension income, rather than earnings, consumption is likely to fall and the burdens on working taxpayers will rise.  Thus, the slowdown in the growth of the workforce and the increase in spending on age-related support, mean demographic trends will have adverse effects on economic growth after 2010.

These changes pose many economic challenges.  Of course, the trends have been in place for many years.  So has the Government been taking advantage of these ‘good years’ to lay the foundations of a meaningful response to dealing with the sudden rise in old-age dependency, thereby minimising the negative impact of the ‘demographic drag’?  Sadly, it seems to have squandered this opportunity.

Our pension system is not well structured for the demographic challenges, has the Government perhaps been preparing the economy in other ways for this looming problem?  For example, has the fiscal situation been reined in, building up surpluses to prepare for the forthcoming strains on public spending?  Sadly not.  Even though taxation has increased, public spending has increased even faster, so the budget deficit has worsened.

GDP GROWTH AT MARKET PRICES 1993-2004

Year

Total GDP Mkt Prices

y/y % change

Central Gov Consumption

 

y/y % change

Local Gov Consumption

 

y/y % change

Household Consumption

 

y/y % change

1993

5.0

3.8

-1.9

5.8

1994

6.0

3.1

3.7

5.0

1995

5.7

2.9

4.4

5.1

1996

6.3

5.1

2.2

7.2

1997

6.0

1.5

0.9

6.0

1998

6.1

3.5

4.6

6.6

1999

5.3

6.6

11.3

6.3

2000

5.1

7.0

7.7

5.8

2001

4.6

7.2

6.6

5.3

2002

5.2

9.7

8.4

5.1

2003

5.9

9.4

9.6

4.9

2004

6.0

6.8

9.2

5.1

 

Source:  UK Input Output Analysis, ONS

 

Since 1997, the contribution to economic growth from both central and local government spending has risen enormously, while gross fixed capital formation and savings levels have declined.  Local and central government consumption spending rose sharply after 1998, outstripping total GDP growth every year by a substantial margin (see Table ).

Since 2000, over half the new jobs created have been in the public sector and the long-term pension spending commitments from unfunded public sector schemes are also enormous.

A strongly expanding public sector, with sharp rises in public (and private sector) borrowing has sustained economic activity until now.  Yet, the forthcoming demographic shift would suggest that we actually needed increased saving, not increased borrowing, to prepare for future needs.

From around 2010 there will be increasing numbers of people not working, an increasing proportion of the population who are not economically productive, fewer workers to create new wealth and a sharp rise in the numbers of pensioners struggling to manage on the inadequate level of UK state pensions and dwindling private pensions.  As a larger proportion of the population has lower incomes, consumption is likely to fall, and growth will suffer.

During years when the economy should have been building up national savings to prepare for the forthcoming demographic drag, the Government has actually presided over a sharp drop in saving and huge rises in borrowing. Economic policy has focused on sustaining growth in the short-term, by spending and borrowing, and has squandered the demographic boost that should have enabled more saving to prepare for the ageing population.  Far from prudent management, this suggests a short-sighted agenda of going for growth now and leaving the next administration to cope with the consequences of demographic inevitability.

Dr. Ros Altmann

August 2006

ENDS

May 5, 2015   4 Comments

The most important election for decades – don’t gamble our future on policies that failed in the past

30 April 2015

This is my honest assessment of the economic and political realities facing the UK

Having given my views on finance and economics for years, I am writing this blog to set out some thoughts on the upcoming election.   I have previously voted Labour and LibDem and each party has some excellent politicians, but the current economic and political realities lead me to conclude that the future of the country I love is at risk if the Conservatives do not form the next Government.  I am not ‘tribal’ in my political allegiances.  I don’t blindly follow a particular party or ideology.  But putting Labour back in charge at this time could be disastrous for the United Kingdom.

Let’s look at the reality, not the rhetoric: I write this even though I know I will be criticised in some quarters for being ‘political’ – which seems to be a derogatory term nowadays, although I’m not sure how one can give views about party policies without being political.  Giving my carefully considered assessment does not change me as a person, nor my values of financial fairness and social justice and my concern for ordinary British citizens.  I hope you will consider the evidence.

The economy:  In 2010, the UK was saddled with a huge deficit (like that of Greece today) and high unemployment.  Now, five years later, the deficit has halved as a share of our economy, we have had growth when the countries around us have been struggling and most importantly employment levels are the highest ever as private sector job creation has boomed.

The policies have worked:  Other countries and the IMF recognise our economic strategy is working well.  However, Labour did not understand.  They said the policies which have created two million new jobs would be a disaster.  Indeed, in 2012, Ed Milliband praised the policies of the new Socialist Government of Francois Hollande, saying he wanted to emulate them over here.  They have actually produced rising unemployment and economic weakness in France.

The Conservatives have proved to be the party of the workers:  Just look at the evidence – falling unemployment and record employment levels.  Unemployment was 2.5 million in May 2010, it is now under 1.9 million.  Most of our EU neighbours still have unemployment rates well above ours.  The number of people claiming JobSeekers Allowance was 1.5million in May 2010, it is now around half that level (0.79m). The employment rate has climbed to the highest level since ONS records began in 1971.  The UK has created more new jobs since 2010 than the rest of the 27 EU countries put together. And two million more apprenticeships.

Nearly all new jobs created are full-time (four out of every five are full-time jobs):    Some commentators have complained that this employment record is still not good enough – ignoring the realities all around us.  Focussing only on negatives seems to be deliberately undermining the real achievement that this jobs boom represents.  Yes, wages have risen only slowly but that will happen when recovering from such a deep economic downturn.  It takes time.

The task is far from finished:  Listening to some of the other parties, it seems that they believe the economy is fine now and we can return to the days of borrow and spend.  That is an illusion.  Promises that they can spend more, borrow more and still keep growth and jobs going are not credible.  We need continuity to ensure the benefits of recovery spread more widely to everyone.  Without growth and a thriving private sector, we cannot repay the debts we owe and our children will be left to pick up the pieces of today’s failure to recognise reality.  Changing course now when the economy is not yet healed is too risky.

Other parties are taking growth for granted – what is their plan to boost private sector employment and pay?  Labour and the SNP have failed to set out a strategy for helping businesses create more jobs and afford to pay higher wages.  Redistributing income and increasing regulation will not pay off past debts or create growth.  Higher pay levels depend on a stronger economy, but the other parties seem to be taking growth for granted.  It may sound enticing to promise more Government expenditure, but if growth is lower we all lose.  It is vital to find a good balance.

Financial fairness for all:    British people want to know that their earnings and savings can benefit themselves and their families as well as wanting to help those in our country who are struggling.  That requires policymakers to strike a careful balance.  Government spending is your money, it comes from the taxes you pay.  Being part of a caring but fair community is important, but it needs policies which will deliver growth and improved prosperity so we can afford to finance public spending.

This is a fantastic country but it still faces huge challenges:  Now is not the time for change, now is the time to continue the policies that are working.  Being enticed by talk of returning to more public spending and borrowing we will be putting all the progress at risk.  Which party leaders are offering the best prospects for our country as a whole?  Those who have created 2 million jobs, 2 million apprenticeships and record employment.  Or those who handed over saying ‘There is no money’?

This is my honest assessment:  I stress that I’m saying this as someone who does not have a blind allegiance to any one party or ideology.  I care about the future of this country and this is how I genuinely see things.  I have set out a logical rather than ideological narrative and hope you will consider my thoughts in a spirit of genuine open-mindedness.

ENDS

April 30, 2015   1 Comment

A Savings Revolution to follow the Pensions Revolution

18 March 2015

We had the Pensions Revolution last year, now comes the Savings Revolution

  • 95% of savers will pay no tax on their savings – will be popular
  • 5m will be allowed to sell their annuity – that’s great news
  • But cutting Lifetime Allowance for pensions is really bad policy
  • Lifetime limit should only apply to DB, but abolished for DC

So there we have it.  The last Budget before the General Election.  A mix of moves to please as many of the electorate as possible, but without committing massive amounts of extra spending.  There is help for savers, help for first-time housebuyers, but nothing to help with the social care crisis.

The main news this time is the help for savers.  This is unquestionably good news for ordinary savers with 17million people benefiting from the decision to scrap basic rate tax on the first £1000 of savings income each year.  This will be popular, as 95% of savers will not pay any tax on their savings income.  Savers have paid tax on their income when they earned the money, so allowing them to earn interest on it free of tax makes sense.

What might this mean for savers?

People with £50,000 savings may not pay any income tax on their savings:  If we assume savers earn 2% interest on their money, then they can have £50,000 in a savings account and will still pay no tax on their income from those savings.  Even if they earn 4% interest (those days seem like a distant memory but who knows they may return) then someone with £25,000 of savings would still pay not tax on their interest.

Non-taxpayers won’t have to reclaim the 20% tax deducted from their income:  At the moment, banks and building societies have to deduct 20% tax from all interest income before it is paid out and non-taxpayers have to reclaim the tax withheld.  In many cases, this money is never actually claimed as the recipients do not know they have to do so.  Pensioners are one of the groups least likely to reclaim the tax, so this will be of benefit to them.

Higher rate taxpayers will have to pay the additional tax above basic rate and the top 5% of savers will still be able to shelter money in ISAs to receive tax free savings income.

ISA savings will also become more flexible:  At the moment, if you invest the full £15,240 into an ISA at the start of the year and then take some money out, you cannot put more back again that year.  In future, the Government plans to allow you to put money in, then take it out again if you need to and reinvest back up to the full annual ISA allowance later in the same tax year.  It is not clear how this will be tracked and I can foresee some administration issues, but the principle is a good one.

So what about pensions – some good news, some not good news:  After last year’s bombshell, we could not possibly expect a similar scale of change.  Building on the pensions revolution started in last year’s Budget, the Chancellor wants to extend the new idea of freedom and choice much more widely.  However, to pay for the giveaway to savers, the lifetime limit on pensions has been cut sharply again.

Undoing unwanted annuities:  The pensions revolution that proved so popular last year has been extended to try to include those who had already bought annuities before the rules forcing most pension savers to buy annuities were scrapped.  The Chancellor intends to offer those who were previously forced to lock their pension funds into irreversible annuities, the chance to sell them again.  Many never actually wanted, to annuitise or bought unsuitable products and understandably felt most aggrieved that future pension savers had freedoms they were denied.  So a consultation has been launched https://www.gov.uk/government/consultations/creating-a-secondary-annuity-market-call-for-evidence that proposes allowing people to sell their annuities.  They will receive a cash lump sum that they can either spend – but will be taxed on as income – or can reinvest into a pension drawdown fund and then only pay tax when they withdraw their money.  This is a fair and sensible policy.

Regulatory protection and advice crucial:  Of course there are dangers that people will be ripped off if companies buying their annuities offer a poor deal.  Many annuitants paid high charges when buying the annuity in the first place or received poor value, so that would be adding insult to injury.  Therefore, we need careful regulatory oversight of the second-hand annuity market, perhaps with controls on charges and making sure people get proper independent advice before trading in their annuity.  The Pension Wise guidance service is likely to be extended to offer help and information with the decision, but advice and regulatory protection are really needed.  Of course, nobody will be forced to sell their annuity.  It will be their choice, but one which they would not otherwise have.

There are circumstances in which allowing people to sell their annuity will be sensible: Those with small pension funds and plenty of other retirement income may welcome the chance to take the cash for urgent expenses or debt repayment.  Others may need to provide a pension for a partner which was not included in their annuity.  Those with guaranteed annuity rates that only offered single life products will have a chance to cover their partner and those who prefer to leave their pension money invested for a few more years will be able to do so, whereas under the old rules they would have needed huge sums (around £100,000 or more) to be able to use drawdown.  Controls on charges or other customer protection might be needed, but at least people will not be stuck for life in an unsuitable product.

However, the other big change to pensions is far less welcome:  Cutting the lifetime limit from £1.25m to £1m is very disappointing.  Indeed, in 2014 the lifetime limit was still £1.5m, it is now £1.25m and cutting it down to £1m is a draconian change.  Cutting the lifetime allowance so sharply makes it much harder for people to plan their pension savings over the long-term.  This is expected to raise £600m in extra tax revenue and will hit many people in final salary or defined benefit pension schemes, as well as those in defined contribution pensions.  The Government suggests that only around 4% of pension pots are above £1million and that it will offer protection for those already near or over the limit, however it is really a shame that this policy has been introduced.

Lowering LTA adds more complexity and penalises investment success – both are bad for pensions: Firstly, it makes pensions still more complicated by adding yet another layer of protection into the rules.  Secondly, it is a penalty on investment success.  Surely the point of pension saving is to benefit from long-term investment returns.  That means it makes sense to limit the amount people can put in with the help of tax relief, but does not make sense to then try to punish them if their fund grows sharply.

Lifetime limit far more generous for DB schemes than DC:  The lifetime limit of £1m will allow members of defined benefit (final salary/career average) schemes to have a pension of up to £50,000 a year within the limit.  However, members of defined contribution pension schemes (which is the  majority of workers outside the public sector) could only buy a pension worth around £25,000 for £1m (with inflation linking and spouse protection), so the lifetime limit is unfair in this respect due to the calculation methodology of the rules.

A lifetime limit for DB schemes makes more sense, but should be abolished for DC: For members of defined benefit pension schemes, who do not have an actual pot of money but are promised a specific level of pension, perhaps the lifetime limit makes more sense, since they have no control over the investments and the contributions are harder to measure due to fluctuations that occur depending on the scheme’s assessed funding levels.  With defined contribution schemes, the better policy would be to control the amount put in each year but then allow the pot to grow as well as it can, without penalising it if it rises strongly.  Therefore, I would like to see the Lifetime allowance abolished for DC schemes.

Nothing for long-term care:  It is disappointing that there are no new measures to help or encourage or incentivise people to put money aside for funding long-term care needs.  Families are not prepared for care, nor is the Government, yet there is a crisis looming which could eat up the resources of many families who might have been able to put some funds away if they had known about it – and could also bankrupt the NHS.  The next Government will have to get to grips with this crisis urgently, time is running out.

Help for younger first time housebuyers with a pension-style ISA plan:  The new ‘HelptoBuySA’ effectively turns the savings of young people preparing for their first house purchase into house pension plans, by offering the equivalent of basic rate tax relief on their savings.  If they need a house deposit of £15,000 for their first home, they will only need to actually save £12,000 and the Government adds the additional £3,000 they require.

March 18, 2015   2 Comments