Earnings come from work – productive work. Earning pay for things – they provide us with the means to pay household bills and the nation to meet its obligations to its citizens. This week we saw one major council renege on its obligations , many others will follow. Today we will see a Chancellor dish out with one hand (to get us working harder) and take with the other – to stop us spending.
The kitty is bare, we are borrowing to a year’s worth of our earnings and so we will get a 2p cut in national insurance, to get us working longer hours.
Instead of tax giveaways and interest rate cuts we are getting more or the same, a dose of economic realism which doesn’t feel too good. We are paying for not working earlier in the decade. If you don’t like it – tough. There are decreasing rewards for not working.
Work – earnings and productivity are the tough remedies we will hear about this afternoon. They cannot be sugar coated, they taste bitter.
So with pensions. The long term remedies for our perceived under-saving lie in earning more which leads to saving more. But – unless the Chancellor chooses to tune down the triple lock, the Government is agreeing to an enhanced social contract with the elderly to ensure that a generation that largely haven’t saved (those with no DB and no DC) are not destitute. We should not forget that the “golden years of DB” passes millions by. Many lowly paid people (and the self-employed) have only the most meagre of pots to retire on.
People retiring today range from those rejoicing in the abolition of the triple lock to those who have nothing but the state pension and pension credit. The Government has also done great things on pension credit.
The remedy the Government is seeking for private pensions (and for the funded LGPS) is to make what we’ve saved more productive by putting savings to work. Firstly , savings are to be focussed on growing the economy by being invested in real assets and in areas of the economy not funded by public markets. Secondly, pension funds are to be encouraged to save more into the UK, being forced to disclose the extent of UK versus overseas investments.
The same theme applies for pensions as for tax, the Government’s aim is to make Britain more productive so that in time it can shrink the state (Tory) or reinstate public services (Labour). The cross party support for growing the economy through more work and through more investment appears to enjoy cross-party support. Much as it may pain the left and right wings, the centralists hold sway. We will have a centralist budget and the next Government (whether called Labour or Conservative) will pursue a similar course.
I have no difficulty with this. The Value for Money agenda is an attempt to divert attention away from the inadequacy of the current contribution structure of auto-enrolment, towards the accumulated pension fund. Emphasising the performance of pensions (net of cost) and what the pension will deliver is a means to encourage us to value better the very real tax advantages pensions have and the increasingly good deal we can get from large pension schemes that have consolidated smaller less efficient rivals.
Putting pension performance in league tables and relegating under-performing pensions to legacy status will be tough for an industry already moaning that this will lead to “unexpected consequences”. My personal view is that those consequences will include a lot of redundancies of senior people not doing a very good job of managing our money and the promotion of those who are. This is no bad thing, I have seldom seen such a flabby thing as the workplace pension “industry” , if “industry” can be applied to what I saw in the Exhibition hall at Edinburgh last week.
We cannot feel grateful to this Government. It has made an arse of itself and of Britain by its reckless and sometimes insulting behavior towards its electorate. Jeremy Hunt and Rishi Sunak are restoring a little dignity after what has come before by being sensible at a time when millions are struggling to pay rent and mortgage, household bills, car upkeep and pensions. We are doing so while paying more tax than ever from our pay-packets and at self-assessment time.
We cannot have tax-cuts yet, we may get some help with national insurance but that help is targeted at low-earners (as it should be). We must work harder for longer to get the right to walk away from work and we must make our savings part of the solution , not the problem.
If I was writing the Chancellor’s speech this pm, that would be how I would start it.