Pension reform: Think twice or pay twice

Neil Lovatt
By Neil Lovatt Posted in Financial industry news
March 25th, 2014

I’ve got form having a go at the Baby Boomer generation, the rock and roll generation that wanted to live fast and die young.

Where the Baby boomer generation has gone chaos has tended to follow. They caused booms and bubbles in nappies, schools, housing and arguably the recent stock market booms and busts.

But this. Well this takes the biscuit. In fact this takes the biscuit, the tin, the cupboard that the biscuits were kept in and a substantial proportion of the kitchen.

I’m talking about the recent pension reform announced in the budget this week. George Osborne has freed us all from the requirement to buy an annuity. Let the cry of freedom be heard loud and proud…. Err except no one actually needed to buy an annuity before the budget.

The real change was actually a not so secret tax cut and a dog whistle bribe to the Baby Boomer generation to dump on everyone else.

But why should someone like me stand in the way of a pensioner having access to “their own” money? Let’s be clear I’m not standing in anyone’s way and I would have made it much harder for anyone to drift into an annuity and made capped drawdown much easier to access.

I just think that we should be playing by the rules we’ve all signed up to.

For anyone currently approaching retirement their pension pot is made up of two sources of income: that of their own money, possibly some from their employers, and also a substantial proportion from the government in tax relief.

That state contribution in the form of very generous tax benefits is paid for by all of us, that is the Baby Boomers, Generation X and Generation Y. That payment was part of a grand generational bargain. GX & Y supplement Baby Boomer’s pensions so long as they lock away their money for the future and won’t financially rely on their children in retirement.

That bargain was bust wide open this week in the search for cheap headlines. Generation X & Y face the prospect of paying twice for their parents.

Not only are GX & Y helping to fund the Baby Boomers pension pots they are now going to support some of them in old age through the benefits system!

Why? Well give the self styled “most selfish generation in history” a big bag of cash guess what at least some of them are going to do? Spend, spend, spend it until they’ve got nothing left.

And when the cupboard is bare no one is anyone going to say “you’re on your own” whilst passing over directions to the local food bank.

Make no mistake about it this policy is going to increase the social security bill and it’s going to be paid by, yes, you guessed it Generation X and Y.

So the generational bargain is now pay twice, pay now and pay in the future and like it.

Sadly no one seems to have noticed. Why should they, we’ll not be paying the bill for a few years, in the meantime we’ll get an artificial consumer and property boom by switching long term investment assets to consumer spending. Who cares about the future after all as the Who said “hope I die before I get old”.







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