Julian Knight: Pension compromise simply postpones the inevitable pain

 

The Institute of Fiscal Studies was busy last week. First, the IFS calculated that the Government's public-sector pension reforms will not save the Exchequer any money.

The problem is that so much ground has been given to the unions, and more pertinently the Lib Dem part of the coalition, that there will be no cost saving. It's depressing that we have been through strikes and a year or so of mud-slinging to reach such a situation.

It means, of course, like the Labour government's agreement with the unions, that we will have to go through it all again in the near future because the sums do not add up. It's as I feared when the details came out about the compromise being proposed by the Government. It's gone too far. The argument for me isn't about who has the better pension, public or private, it's that the private sector is taking on the investment risk for those in the public sector. And, according to the IFS, that will still be the case despite the reforms.

The IFS's other area of activity last week was its recommendation for the upcoming Budget.

It put the case for a tax cut to ease the economic situation. Now with the UK's budget deficit worse than Greece's you'd think that this was a mad time to cut taxes, we need every penny we can get.

However, the crisis in the eurozone is dragging our economy down, and although it would be a massive error for the Government to go back on its public-sector spending cuts – this is necessary to rebalance the economy back to more productive private enterprise as well as keeping the international markets on side – putting some money in people's pockets right now could be just the tonic needed to see the economy out of this dip. A few billion given back in the Budget could mean much more gathered through the tax-take from greater economic activity.

It would help consumers who are being squeezed by higher prices and poor wage settlements and lift the mood a little. Confidence is key to avoiding a dip turning into a full-blown recession. There is a small amount of wiggle room: the markets will understand as long as the programme of public-sector spending cuts is restated and the IFS is right to suggest the Chancellor takes this opportunity.

Future penury

So much for enjoying your golden years. Pension provider Friends Life has produced a report on the future home of the pensioner. And instead of relaxing in an armchair to a bit of Countdown and a sweet sherry in the afternoon, we face having to manage a host of cottage industries to fend off abject poverty.

Pensioner homes will be part-time work places with silver surfers flogging their prized possessions on eBay, tutoring or even managing a crèche. Our later life could be more manic than our working one, according to Friends Life, unless we save sufficient amounts in, guess what? A pension.

One way though that pension providers could save us from old age penury and toddler lassooing is by lowering their charges. Last week, a study showed that someone paying £200 a month into a pension over 25 years could expect to pay £20,000 extra in charges between the highest and lowest charging pension plans.

True and Fair

On the subject of charges, the True and Fair campaign was launched by husband and wife team Alan and Gina Miller last week. Both are names in the City and, with the backing of consumer groups and a smattering of MPs, the dynamic duo would like to see a clearer explanation of fund charges given to investors.

At present we have a plethora of small charges loaded on investment funds with no easy way to tell which funds are cheap and which expensive. In fact, all too often the huge number of poor performing funds are able to get away with charging the same as the best performers.

Now putting aside the subject of what passes for pillow talk in the Miller household, we are long overdue real transparency in this sector and I hope there will be some real momentum behind them. Last week a couple of managers cut charges on some products. But the fear is that those paying lip service to more transparency will return to the old ways as soon as the fuss dies down. It is, after all, easy money.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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