The Great Debate UK

Is controlling your own pension really a good thing?

A central pillar of George Osborne’s 2014 budget was the announcement that pensioners will no longer have to buy an annuity upon retirement and that they would have more control of their pensions pots, including the freedom to withdraw cash without incurring penalty tax changes.

This is a true blue move that has Conservative values right at its heart – giving retirees the right to do what they want with their money. While in most instances being freed from the shackles of government is something to be celebrated, in this instance a little government paternalism can be a good thing.

On paper it’s easy to see why the government has stopped forcing people to buy annuities – their dismal pay-outs in an era of record low interest rates were a major bugbear for today’s retirees (and next year’s voters in the general election). Indeed, some annuities come with so many punitive conditions and get-out clauses that you would have been better burning your money rather than buying one in recent years.

However, at heart an annuity in retirement is not a bad idea, especially in an era when firms can no longer afford to fund defined benefit pension schemes. Rather than cold shoulder the annuity the way that Osborne did, he should have worked with the pensions industry to make annuities a more reliable product for the UK’s large cohort of retirees. Osborne could be accused of dealing with this problem far too late into this government; after all if interest rates start to rise from next year, as expected, then annuities could become more attractive.

Backing up the rhetoric

John Angood–John Angood is Tax Senior Manager at BDO LLP. The opinions expressed are his own.–

Confidence up. Inflation down. Exports up. Unemployment down. Growth forecasts up.  With this backdrop it must have been difficult for George Osborne to draw up his fifth Budget. But what we have ended up with is a Budget for blue rinsers rather than businesses. He obviously thinks that everything is heading in the right direction with the economy and exports so there is no need to do much, despite all the supportive rhetoric around helping businesses.

The Mediocrity Trap

Sheila Lawler–Sheila Lawlor is Director of the London Think Tank, Politeia. The opinions expressed are her own.–

George Osborne had good news to tell in his 2014 budget. The deficit continues to fall. Forecasts for 2014 growth, at 2.7% , are better than expected. Employment levels are now on a par with the US (he did not add that they lag behind Australia or Canada). The challenge he has set for this country is to increase exports to one trillion pounds by the end of the decade. That means the UK must increase its exports each year by 10.4 per cent.

A good news story

–Cathy Corrie is a researcher at the independent think tank Reform. The opinions expressed are her own.– Today’s budget was a good news story. There is now no major advanced economy growing faster than the UK. Yet underneath the chancellor’s celebration, the end of austerity is nowhere in sight. With national debt heading inexorably up to over 75% of GDP, in the words of the chancellor: “The job is far from done.”The chancellor today made reference to two strategies to secure the public finances for the long term; the first, an Annual Managed Expenditure (AME) cap to limit welfare spending, and the second, a new Charter for Budget Responsibility, to be announced in full this autumn. Through these new measures Osborne has pledged to “fix the roof when the sun is shining to protect against future storms”, by returning to absolute surplus in the years of growth. The goal is to allow the UK to enter recessions from a position of financial strength, not on the back foot.Yet while the chancellor should be applauded for keeping fiscal discipline at the top of the agenda, history shows he faces a daunting challenge to deliver on his promise. For twenty years, governments have allowed debt to build by consistently spending more in recessions than they save in periods of growth. Debt has been left £124 billion higher as a result. It’s worth noting that 22 out of the last 26 forecasts have promised a return to surplus. No government since 2002 has thus far delivered.

Osborne’s pre-election gimmicks do little to address Britain’s long-term economic problems

Richard Wellings

–Dr Richard Wellings is Deputy Editorial Director at the Institute of Economic Affairs. The opinions expressed are his own.–

History is unlikely to be kind to George Osborne. Four years after he became chancellor, the national debt has exploded, the budget deficit remains at dangerously high levels, and an increasing share of tax revenues must be devoted to repaying creditors.

Europe’s bigger crisis waiting to happen


By Kathleen Brooks. The opinions expressed are her own.

So it looks like Greece has staved off default for another few months at least. Investors are breathing a sigh of relief and buying up risky assets like the world is a rosy place again.

The markets always suffer from a chronic case of short-termism, but once a sovereign debt crisis takes hold it is very difficult to reverse. Investors may be concentrating on Greek, Irish and Portuguese funding needs for the next 24- 36 months now, but it won’t be long before investors start to scrutinise longer-term liabilities that are currently being clocked up for the next 10,20 even 30 years.

from Global Investing:

Russia’s babushka time-bomb

The babushka, that embodiment of Russian grandmotherly goodness that has spawned iconic dolls and inspired a Kate Bush song, poses one of the gravest threat to the Russian economy.

Moscow-based investment bank Renaissance Capital also expects this segment of the demography to spur politically risky pension reforms.

from Funds Hub:

Where there’s muck…

Pensions schemes are in trouble, but those attempting to get them out the mire are seeing some money-spinning opportunities.

Corporate retirement funds that have promised to pay workers based on their final salaries have long been heading for difficulties as we humble drones have the temerity to live longer than anyone thought possible. Combine that with roller-coaster markets and unpredictable inflation and interest rate prospects and trustees start hunting around for a golden bullet.

Osborne’s budget alleviates worries over pensions tax relief



-Joanne Segars is chief executive at the National Association of Pension Funds. The opinions expressed are her own.-

Osborne delivered a tough and important budget, but one issue he didn’t really square up to was the UK’s woeful record on saving for retirement.

A call for a cross-party consensus on pensions


Damian Stancombe-Damian Stancombe is head of corporate defined contribution at Punter Southall. The opinions expressed are his own.-

Pensions were a prominent feature of the chancellors’ debate recently, and are becoming a key battleground in the run-up to the election. Perhaps more interesting for us, however, has been the reaction of UK plc to the pensions issue and any government-led ‘solution’.