Haldane

Bell

Someone asked me on Linked in if I knew of a book to learn about pensions. I suggested “Great Britain? How We Get our Future Back” by Torsten Bell. It is not about technical aspects of pensions but a quick look at its chapters tells you its about a new patriotism which could rid us of his title for Britain “the stagnation nation”. He suggests we can reclaim the future we have lost through sharing the burdens and sharing rewards. Much is about housing (which of course is a part of retirement) much is about work (which he says isn’t working as it should) but at its heart it is about Britain as an investment nation.

Actually, Torsten Bell is very much like Andy Haldane and Andy Haldane is much like Andy Burnham. I suspect that Bell has found the soon to be reset Government a little dysfunctional and he may have more of a part going forward. I think he is has been a  little too big for the Junior Pension Minister he has as Pensions Minister, but a little inexperienced to take on more. That may change , or maybe the job of Pensions Minister will be upgraded.

Last week, Andy Haldane suggested that pensions and other forms of long term investment (the family of ISAs) were reservoirs of money that could water Britain’s arid economy. You can read Haldane’s speech here.

Haldane is neither a politician or a pension specialist, he is an economist and he sits on a separate table to pension people, his table includes (to my mind) Will Hutton, Ashok Gupta and Lord Pitt Watson. These people are collectivists who think of “sharing the burdens and sharing the rewards”.  I would like to think that an increasing number of those who sit on the pension table are listening to the conversation on the table next door.

I am straying onto the analogy in Haldane’s speech; but at a very practical level, sharing burdens and sharing rewards is what those who want pensions to be paid out of a shared fund, through a system of distribution that shares fairly between young and old and is confident that what is right today, was right 50 years ago and will be right in 50 years tomorrow,

I don’t think that this is utopian, certainly not dysfunctional. It recognises that though the economics of business change, the needs of people to work and then stop working remain the same and that to fund a wage in retirement for most of us means putting money by. It is not a hi-jack of our money to suggest that it be invested in our social and industrial productivity. Gupta, who chaired a pension company (Mercer) sees financial productivity coming from a new capital consensus.

He does not go so far as Haldane in delivering solutions. Haldane suggests that those who participate in re-establishing “financial productivity” through pensions are rewarded by financial incentives. Those who do not invest in  (from companies to individuals) om Britain as an “investment nation”, will not share in the incentives. They will lose the incentives (the tax relief) that they currently enjoy,

This idea goes way beyond the Mansion Agreement. I suspect Burnham will go beyond Starmer and ideas of Bell will be advised on by Bell and Hutton but implemented by Bell and those who follow him in creating the secondary legislation to make pensions work. This legislation will help us move from short term savings (what workplace savings  becomes when people want their money back) to long term investment in paying pensions.

In practice this will be a mixture of draw down “flex”, annuities “fix” and a system of collective pensions . Bell would call our saving   “the burden” and a wage for the rest of our retirement  which Bell calls  collective reward.

There will be fierce opposition to abolishing the right for individuals to manage their own wealth as they want and I agree that a system of self invested personal pensions need to stay in place for those who want to go there own way. If the Government decides to implement a system that links tax relief to investment strategy then it might argue that SIPPS should be exempt, but that is to miss that most of the money in SIPPS has been transferred there from workplace pensions.

In the last decade , through to the hiatus in October 2022, transfers came from defined benefit schemes. Since then – mostly because of a fall in transfer values but also because of tougher regulation of DB transfers, they have slowed to a trickle, SIPPS are mainly funded today by people transferring from workplace pensions to wealth.

Whether DB or DC transfers, these SIPPS are mainly transferring money in the pension system that has been rewarded by tax incentives and will I expect be unaffected by a change in taxing on “new money” going in.

I would suggest that if the Government wants to incentivise investment in UK growth, it removes the impact of Gordon Brown’s restrictions on investment on “tax free” UK equity investments, so as to encourage  what Haldane calls growing our economy by unleashing the potential of Britain’s businesses. Tax is very important to  investments and  it is one of the few levers that the Treasury has , to influence and achieve its forecasts for growth.

If Burnham’s half of this Government is going to achieve the targets of growth for Britain in the decades ahead, it must take long-term decisions. Pension decisions are always long-term. While people can opt out by taking money out of pensions into personal wealth plans, the vast majority of people won’t. Most people will default into the pensions they always thought they were saving for.