Nothing wrong with being a worm

By any stretch, this was an intelligent budget. The Chancellor shared with parliament and the nation the problem he has dealing with increased demands on the state while wanting the state to make decreasing demands on us.

If the aim is to have a smaller state making less demands on us, this budget has conspicuously failed. Government spending, principally on health will rise by 3.3% in real terms and taxation will increase to more than match the extra demands on the exchequer.

I am not an economist, with wings that take me high over the macro-economic landscape, I’m a worm, squirming along – paying my taxes and using the services I pay for. I like being confided in by a confident Chancellor, I like being a part of his problem and I think Sunak is playing his hand well.

My worm’s eye view concentrates on pensions and yesterday I did what for me were the pension headlines from this year’s budget. Rishi got very noisy about workplace pensions which he sees as part of the solution to his problem ( a smaller state can be achieved through the deployment of productive capital we have saved for our later lives). He chose to talk about the pensions cap which is (as the PLSA told him) the least of the issues trustees , platforms and savers have with increased investment in opaque expensive illiquid assets and funds. In the big picture, the peg Rishi chose to hang his “investment big-bang” cloak on, doesn’t matter. What matters is whether private pensions are prepared to take on a role that a shrinking state wants to withdraw from.

These are the obligations that Rishi can’t walk away from

When you consider the proportion of the health and care budgets that are spent on the,  elderly and couple that with spending on the state pension , you can see that the demographic time-bomb that Bryn Davies taught me about in the 1990s is now detonating.

And the big question this budget asks of the pension system, much more than the issues of pension taxation which we think so important, is whether private pensions can pick up the strain.

Ros Altmann argued in Westminster on Monday that many people would be well advised to hold back on spending their pension and use it as a buffer to meet the costs of terminal care. It’s an alternative to the care levy we’ll be paying from next April but it’s not the alternative the Government has chosen. It looks like we’ll be paying for our care through the national insurance system not private funding.

Apart from its role in funding all the stuff that’s in the private markets, what is the role of private pensions in solving Sushak’s problem. The budget confirmed that this year’s state pension increase will be considerably below the increase in the cost of living, depending on the measure you take, it could mean a cut in real terms of as much as 3%. Is there enough in the private pension systems to continue to run down the state pension to a double and perhaps single lock?

Or is the Government really going to take pensions to the center of a campaign to reduce Britain’s emissions to net zero and make a meaningful contribution to the climate crisis in the next ten years? Here UK funded pensions are being asked to take the strain not just for a national issue but a global one.

There is a lot of money in our pension system in the UK and its money that has been heavily tax-incentivized to find its way out of the hands of shareholders and workers and into work and non-workplace pensions.

The Chancellor is asking serious questions of those who have command of the deployment of that money. In my worm’s eye view I can see his problem and the problems of fiduciaries to whom he is appealing. As a worm, I can squirm but I can’t fly and I can’t answer the big questions. I put my trust in those who look after my money.

Despite all the noise about our being a highly taxed nation, relative to others we are not.

The worm’s view

From where I’m sitting I can see demands on the exchequer increasing as the climate crisis gets worse and as we get older and frailer. We may get another pandemic or similar shock but compared with age health and climate, the pandemic has been a hurdle not a gate.

Faced with having to pay more taxes or pay more into a pension, most people would choose the latter (as has been shown by the success of auto-enrolment). Meeting the big societal problems of ageing and climate change, our pensions do matter. Infact they are a social insurance policy which needs to succeed.

Put in these terms, this worm is prepared to pay more from his pension investments rather than pay more in taxes. Which is why I am happy to pay people to take climate risk out of my portfolio and why I am happy to invest in productive capital and accept some loss of liquidity. This worm is even happy to pay higher fees to access markets which provide positive impact to society.

But I don’t want to be treated like a dope, even worms have dignity. The calls on my pension money are calls I will pay provided the calls are made honestly and openly.

a worm’s eye view can be positive!