“What do you think of Western civilisation?” A journalist once asked of Gandhi. “I think it would be a very good idea” he replied. I feel the same about George Osborne’s so-called pension ‘reform’. As I wrote yesterday, the Chancellor is not reforming Britain’s pensions industry. He’s unravelling it. But that’s not to say that we don’t need the kind of real change that could have been announced in the budget – we do. For too long, savers have been punished by a pensions industry that is too complicated, too unresponsive to the needs of retirees and too inflexible.
My friend Rachel Reeves, who is responsible for Labour’s policy on welfare and pensions, has worked tirelessly to expose the problems in the annuities market. She has written that £1 billion of pensioners’ hard earned money is lost every year by savers missing out on the best possible deal. That’s unforgivable and unsustainable. But the answer is to fix a broken and important market. Not to pull the rug out from underneath the pensions deal that protects individuals, families and the taxpayer alike. The kind of reform that Rachel has pushed for is what we deserve. A right to completely independent advice – so that everyone can shop around for the best deal. A cap on the fees – which are sometimes incomprehensibly steep – so that no-one has to fork over more than 0.75% of their hard-earned money.
And I would go further. If you have a pension pot that, once translated into annuity payments, would give you a return that is less than the Living Wage then you should be able to cash that in tax-free. Why? Because it doesn’t live up the pensions deal that is so important to securing our collective future – it doesn’t equip retirees with the salary replacement that insulates them and the taxpayer from risk. So yes, reform. Urgently. But that is not the same as the reckless, cynical and calculating manoeuvre we saw from the Government on Wednesday.
You see, George Osborne is not reforming pensions. He’s robbing Peter (Generations’ X and Y) to pay Pauline (Baby boomer) in an effort to boost consumer confidence and create a feel-good, short-term boom in the run up to the 2015 election.
Millions of Baby Boomers will be handed a tax-free lump sum – to ‘buy a Lamborghini’ in the words of the pensions minister. That money has been built up in a partnership between the worker, the state and the employer – it has been specially protected and had special tax treatment. It is a shared pot that was designed to create collective resilience in our economy. Now, it can disappear over night and the people that have supported the creation of Baby Boomers’ pension wealth – Generations X and Y – who have helped to support and protect these pots of money through their taxes and through their own payments into occupational pension schemes are faced with the prospect of being punished. Whilst their parents are snapping up buy-to-let properties with their injections of easy, tax-free cash, young people are struggling to buy a home of their own.
And whilst some moral hazard has been negated by lifting the basic state pension above the means-testing threshold, a myriad of other services are on a needs-must basis – social care, for example – many more older pensioners will find themselves in poverty having spent their pot too early. The taxpayer will foot the bill.
The Chancellor has stolen from young people in order to finance a giveaway for what remains of his ‘core vote’. In doing so, he has threatened the deal between savers and the state on pensions. He has added fuel to the flames of a housing bubble that excludes young homeowners to the benefit of amateur slum landlords. He has betrayed young people by leaving them to foot the bill further down the road. And he has sought to fundamentally undermine the collective principle at the heart of our welfare state. I don’t oppose the Chancellor’s annuity policy because I’m on the side of financial services. I oppose it because I’m on the side of fairness, of responsibility and of principle ahead of low politicking. Reform is essential. But it’s different from vandalism. And that is what Osborne is guilty of with this budget.
If you’re under 45, you need wake up and smell the coffee. You are being screwed. The Labour party also needs to wake up and smell the coffee. These people are the future. They need us to fight for them. PS Here’s the Buzzcocks, dedicated to Steve Webb.