It may be that my first take on the budget significantly under estimates the impact of the changes around the use of pension savings. I was looking to make the point that you’d need to be rich, or to have been rich for this to make a difference but it’s possible they will have a wider effect than I expected. The stock market reaction and political comment certainly suggests that this is the case.
£3bn up the wall
The Financial Times, reports on the massive loss of market capitalisation of the British Life Insurance companies who have relied on annuity policies as their cash cows since the 1980’s when Thatcher first de-mutualised the pensions industry. They also point at the new winners, those providers that will provide alternative products to replace the discredited annuity market.
Tom Watson MP, takes this up in his blog, where he argues that by allowing access to their pension pots, the Government are breaking the social contract which consisted on the tax protections that these funds earned over the, in some case, decades it took to build them up. He also makes the point that these reforms will come into effect next year just before the election. Osborne continues to show his class.
Robbing the young again
In a follow up article in Labour List, Watson examines the inter-generational impact of these reforms. It off course attracts the usual trolls, amongst whom are some informed comments about how the release of this cash will reinforce housing demand as the money that doesn’t get spent on Lamborghinis will be invested in Buy to Let property in an already over heated and unaffordable for many market. However no-one has got to grips with the fact that it’s today’s workers that pay pensions, the pensions industry is just an accounting mechanism and when today’s young catch on they may choose to stop paying them.
There are two underlying truths, one is that the annuity industry was lazy, greedy and poor value, the other is that the price of risk is increasing and the Tories at least want to get the state out of that market. The fact remains the winners in this budget are savers with large pension pots and the financial services industry; these reforms will transfer the fee earning capability from retail institutions to the mayfair fund managers. I leave it to others to point out the political clientism.