NICE TRY, Mr Letwin, hauling out that 10 per cent savings boost for basicrate taxpayers who pay into a pension plan. It was a treat to hear John Humphrys spluttering that this Tory tax break is redistributive: it benefits people on ordinary incomes rather than the 40-per-cent mob.
The trouble is that no long-term pension strategy ever won an election. This is presumably why Labour, ever pragmatic when it comes to staying in power, isn’t bothering. It prefers to wait for the Turner report, long after the electoral dust has settled. You get more votes by promising to increase state pensions now than by thinking 20 years ahead. Yet there is an awful irony: the more visibly OK today’s pensioners look, the less motivated the rest of us are to save. There isn ’t enough terror to spur us on.
“It’ll be fine,” we say, “I won’t have to buy work clothes or commute or pay for the kids — I’ll grow a few veg and use my bus pass, nobody starves these days . . .” Yawning, we put off for another year the tedious business of sending money to the National United Providential And Hardly At All Dodgy Life Assurance Company. Especially since we darkly suspect that a large slice of our money will go to keep the Nuphad directors in BMWs and Caribbean islands.
Modern governments have a dilemma. Every calculation shows that Britain is not setting enough money aside for its old age, either privately or communally. Only senior public servants — like MPs — are featherbedded. For most of us, longevity and rising expectations have changed the landscape: forget those ads showing laughing oldsters playing golf in Florida. A few have been lucky, but it is barking mad to expect to work for 40 years and live the life of Riley for the next 30, either on your own savings or on the taxpayer. It just won’t work. But few of us believe it. We don’t save enough because of a toxic mixture of affluent complacency, economic illiteracy and mistrust of financial institutions.
Take the last element first. There are, I am sure, firms of immaculate probity and efficiency, but the reputation of the financial sector is savagely dented. There was the endowment misselling scandal, in which an apparently prudent manoeuvre turned out to be a gamble on the stock market. Victims were not told that there was a risk of not reaching the target. All the “advisers” said, pocketing their commission, was that the size of the surplus might vary.
Then there was Equitable Life, whose policyholders suddenly discovered that it is perfectly legal for a company not only to offer zero return on your premiums, but to invent a “penalty” and pocket a fifth of your money when you withdraw your custom. Then there was the pensions misselling disgrace in which assorted sharks talked people into moving from safe employers’ schemes to unsafe private ones. Overarching it were the big scandals, the worst being Maxwell. In an era when government bailed out speculative investors in the BCCI bank, Maxwell pensioners got little or no help. Yet they were not gamblers, but ordinary Joes who tried to be responsible all their working lives. Government shrugged, and to this day many are less secure for it. The old belief that authority would “see fair play” vanished. Even now, information dribbles out about how the regulatory authority had its warnings ignored by the DTI. More recently, employees of small failed companies have been similarly thrown to the wolves. Meanwhile, the goalposts moved with Gordon Brown’s “raid” on pension fund dividends.
Thus ever fewer of us believe that financial institutions are good value, or well regulated. Combine that with natural reluctance to believe that we will ever grow old, and with the Micawberish belief (very strong in this lottery age) that something will turn up; add the delusory sense of security that goes with rocketing house values, and you get a population reluctant to save until its knees start to creak.
In such a situation, a Martian would expect that every political party would be focused on removing obstacles to pension savings. Yet it doesn’t happen. Even tax relief often fails to tempt: amid the more naturally provident citizens, buy-to-lets and ISAs grow increasingly popular because of the nannyism surrounding pension funds. The bugbear is the 1888 rule that by the time you are 75 you must use your pension to buy an annuity. After a small lump sum, the state dictates how you spend your pension — not just the bit it remitted in tax relief, but all of it. Annuity rates have halved in ten years; general longevity will keep them low. And even if you die the week after handing more than a quarter of a million quid, your money is forfeit to the pension company. In other words, as a 75th birthday present the State forces you to hand over most of your money to a stranger in a suit who hopes you’ll die soon.
Yet being 75 does not make you too gaga to control your own money. It has frequently been suggested that government should only insist on enough annuity to lift you past the poverty line, and let you use the rest — to help grandchildren, back West End musicals, cruise round the world, whatever. That suggestion has got nowhere. There are changes coming next year: personal pension holders can get a new sort of annuity called an Alternative Secured Pension (ASP), which preserves some of your capital. But its returns are likely to be feeble and its workings are far from clear, even to the genius financial brains on the Money section of The Times.
And then there’s means-testing: good for the poorest but indubitably annoying to the prudent. It is calculated that by 2025 most pensioners will fall into a benefit trap, losing potential state support because they deprived themselves and their children of treats years ago. So half of us embrace depression and say “to hell with the future” and the manic half say “Behold the lilies of the field . . . ”. Look forward to the day when commuter trains and burger bars will be packed with worried octogenarians who daren’t retire.
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