Robin Blackburn, author of Age Shock: How Finance is failing us and other books, comments on pension changes made in George Osborne’s Budget.
I can understand why there has been a reluctance to criticise allowing holders of pension plans to cash out their pension pot rather than being forced to buy an annuity at retirement. In recent years, with miserable interest rates, annuities barely keep pace with inflation.
However this measure will offer greatest rewards to those with higher incomes. About half of all tax relief goes to the top 10 per cent of earners. To those with small pension pots — say, £10,000 or £20,000 — it will bring welcome flexibility but is not a big deal.
A dwindling number of people are covered by “final salary” or “defined benefit” schemes, and the measures will probably not have major impact on them.
For the majority the new arrangements will do nothing, or very little.
Osborne claims that he is enhancing “choice”, but the likelihood is that he will be destroying or degrading the workings of the annuities market. Annuities work best when large numbers are obliged to pool their risk — in this case the risk of outliving your pension.
If the well-off are to get a handsome bonus, and if annuities are threatened, it would be only fair to come up with benefit for those left out — and, if possible, to make sure that annuities survive and prosper.
These desirable outcomes could be secured by setting up a publicly owned and guaranteed annuity scheme to be financed by a share levy on banks and other corporations, equivalent to 10 per cent of their annual profits, along the lines I outlined in Age Shock: How Finance Is Failing Us.
Membership of this scheme would be open to all and it would furnish a second pension to all. It would offer reasonable annuity rates to any extra entitlement that a member wished to purchase from the National Annuity Fund.
It would be set up so as to deliver the advantages of risk pooling to all taking part.