I was “only” 32 when this song came out. It’s still in my head 32 years on!
Over the weekend, I have had a number of conversations with friends who find the proposition from Andy Haldane that this Government incentivises “effective investment” into the UK with home-bias taxation.
I know that we have not heard the end of this! So I will write an explanation of why I think in time a shift to home biased investment could benefit both Britain and our pensioners.
The key to all this is “collectivism” and the sharing of risks within pensions over time. CDC is designed to pay regular inflation linked income to people for as long as they live. To do this, it relies on the sound investment of a single pension fund into which thousands of savers tip their contributions every month. For most people, that money won’t start coming back to them as a retirement wage but for young and old , the payment of that retirement wage will be paid till they die (or their spouse dies – if the spouse lives longer).
Andy Haldane points out that in research by those (among then Nest) people consistently say they thought that their savings were invested mainly in Britain and there is anger when they hear their money is invested around the globe but mainly in America. As a 64 year old with friends outside the business, I can testify the same from “us lot”. We are patriotic and want our money to make Britain great, we want out future back as our pension minister puts it.
I think it is hard for this to happen if the pension scheme is making preparations to be bought out by an insurer ( a lot of DB plans are). I am not saying that our DB plans aren’t important but it is only a minority of them that can do the kind of things that Haldane and those he hangs out with, want to happen.
The vast weight of money to pay our future pensions has yet to be contributed and where it goes will make a big difference to the society we have when we retire. If you are already retired, you may not make any further contributions but you may find yourself in a retirement fund for 30 or 40 years!
We should not be obsessed by returns over 1, 3, 5 even ten years so much as the longer terms of pensions. Collective Defined Contribution pensions take a view of pensions they will pay that assumes a duration of those payments measure not in years but decades!
I would like to see not just disincentivising short termism and trading to be top of the VFM pops, I would like to see incentivisation of effective investment into British stocks and British infrastructure. This should be the long-term intention of CDC. Even in the short-term, it can address the issues of geography and invest from day one much more into the UK than would get there under market weighting.
This annoys Norma Cohen and Simon Harrington and I am quite sure this week will see more thunder balls from Jo Cumbo and others. But we must move on from where DC schemes have been this century. We need to get our future back even if that means to returning to when pensions were what Frank Field called our “economic miracle”. I’m talking of a time even in 1997 when UK equities were given the same tax treatment on dividends that pension enjoyed from overseas equities. It has only been since Frank Field used that phrase that British pension funds have stopped investing in Britain! It has only been since Gordon Brown stamped his foot on UK equity investments. It has been since legislation and regulation was introduced that turned best endeavour pensions into guaranteed pensions. Together, the disastrous years from 1997 to 2010 that broke DB pensions , need and can be redone by CDC.
But for that to happen, we need to return to the confidence not only that Britain can get better but also that pensions can get better.
I would be delighted to see a home bias in CDC. I have a DC pot , I want a CDC pension, especially one invested in a fund with a home-bias.
Things can only get better , I’ve had that D:ream for 33 years, I hope you have too!
Henry, this is idiocy on stilts. No one seriously objects to the idea of UK pension fund capital being used to nurture the growth of UK start-ups, tech companies and the innovative disrupters the UK is so good at creating and so poor at nurturing. No one wants to see ownership pass overseas and for the profits to accrue elsewhere. No, the problem with Haldane’s proposal is that it is idiocy on stilts.
Linking the tax relief granted on the flow of new contributions to how the stock of existing money already in the system is invested is a horrible idea. It would be difficult to define, to monitor, to control and to explain to investors. It would probably be quite easy to circumvent and in the meantime, it would be a repugnant bureaucratic, expensive imposition on an already ludicrous over-regulated pension sector.
Far better to do 2 things:
1. Scrap Stamp Duty Reserve Tax on UK shares. The tax literally penalises investors who buy UK shares. We’re an international outlier; most countries either impose no tax or charge it at a lower rate. Scrapping it would cost the Exchequer somewhere above £5 billion in up front lost revenue; in the long run it would more than pay for itself in higher pensions, more jobs and increased economic growth, all of which would be taxed in due course.
2. Reintroduce corporation tax relief on dividend distributions to UK pension schemes. You want UK schemes to invest in UK shares? Then stop taxing them on the returns they make. DB schemes are largely a lost cause, as they run through to derisking and wind up but DC schemes have an appetite for equity investing; incentivise them to invest domestically, don’t penalise them for not doing it.
I once tried to explain pensions to Andy Haldane. It seems he still doesn”t get it.
Best wishes
Tom
Tom
Haldane and others in this camp, have you and Jo Cumbo to contend with over this (infact almost the entire Pensions UK membership). It is outrageous to pension people but not, it seems, to most people who want their investments to play “home” rather than “away”.
Interestingly two former pension ministers, Guy Opperman and Ros Altmann are for this idea (so it can’t be deemed exclusively Labour).
I would do it by unit cancellation with the money deducted from DC pots regularly, It would be based on the default’s allocations at the end of the quarter. I’d work on the baseball basis where the first two misses are forgiven but if you miss the ball three times in a row, the money is taken from your account.
I would imagine the trustees would not want to face employers whose staff had had their pension fined for stupid allocations. Employers could move the workplace pension away or, perhaps in conjunction, sue!
If Trump suggested something like this the bien pensants would mock it as lightly disguised fascism.
What Was It Like to Be a Peasant in Medieval England?
Living conditions for peasants in medieval England were better than most people imagine, with good working conditions and plenty of opportunities for fun.
I question as a bien peasant, am I a serf or a freeman? I don’t credit this as Trumpian, I don’t find Andy Haldane a fascist – but you’re entitled to your view!
https://www.thecollector.com/medieval-england-peasant-life/
Great perspective! The blend of optimism and practical policy suggestions here makes me think Britain’s pension system might finally get the boost it needs.