Let’s celebrate the Chancellor’s bravery on pensions – now
perhaps the Government can tackle other mighty vested interests

The new system means care costs for older people may be lower than feared

Share

When the Chancellor concluded his Budget speech last week, I barely stifled a whoop of joy.

With a few strokes of his pen he had done away with compulsory annuities and simplified the muddled UK pension system in a way that no one had dared to do for years. Then the griping and the backlash began.

Complaints from the many-tentacled private pensions industry were understandable. Even if so-called experts were still analysing the precise implications days later, the financial markets were in no doubt. Companies whose chief business was linked to annuities lost large amounts of their value within the hour.

Here was proof positive of how far annuities had become a money-spinner – not, of course, for those of us saving for a pension, but for those who packaged these payments-for-life, otherwise known as annuities, on our behalf.

Less comprehensible – to me, at least – were the objections from Labour (until it got its act together), some charities and the “care” sector, which fairly dripped with paternalism and condescension. Their central argument was that the changes placed far too much responsibility on the individual saver. Would beneficiaries not behave like imprudent lottery winners, living high off the hog, before falling back, penniless, on the state?

When the Pensions minister, Steve Webb, said he was relaxed about anyone who blew it all on a Lamborghini, he was chided. But he was right. Anyone withdrawing all their pension savings at once will have to pay tax on it, as if it were earned income. Nor will those who rip through their pension cash be a charge on the state; they will just have to live on their state pension – which is being raised to exclude most people from means-tested benefits.

Let us, though, for argument’s sake, posit a purpose-built retirement home or a foreign holiday, or a new central heating system, in place of the Lamborghini. Might that not be an admirable use of someone’s pension money? Being able to take more money at a time when you are still healthy enough to enjoy it is also a plus. For many people it will be far more satisfactory than a drip-feed of, say, £200 a month from an annuity when they may be too old or ill to appreciate it.

Ah, yes, say high-minded detractors, but what about “moral hazard”? That £200 or so a month in later life should have been there to defray care costs. Councils will have to foot the extra bill. But this ignores the current, perverse, state of affairs. It is open to people now to pay down their assets to avoid care costs. If they leave it until they actually need care, councils can try to claw some of the money back. Act early enough, however, and you may get away with it.

Which is one reason why the current system of funding care does not work. In fact, as the Demos think-tank has argued, the only personal assets that can make a big enough dent in projected care costs are mortgage-free houses. But if the new system means more pensioners can choose, and pay for, purpose-built accommodation – in retirement villages, for example – subsequent care costs may be lower than feared, and the quality of life for elderly people a good deal more agreeable. 

As for the new decisions that tomorrow’s pensioners will have to take – decisions supposedly so momentous and complex that they will befuddle our tiny minds – what exactly happens at the moment? Anyone who contributes to a private pension receives mountains of paperwork, the weight and lavishness of which seem increasingly to be in inverse proportion to the forecast payout. The decision on taking an annuity – when, from whom and on what terms – implied at least as many risky variables as the choice between spending cash or saving it, a calculation that most people do every day.

But it is not just our release from the diktat of annuities that we should celebrate, but the way it was done. There had long been criticism of the system, and bitter resentment from new pensioners, now that rates (thanks largely to quantitative easing) are so low.

A small measure of choice was introduced, but a recommended ceiling on service charges was fought tooth and nail. Industry representatives said that such a move would take years, and could make the rates even worse. Well, they would, wouldn’t they? Last week, in a matter of minutes, the Chancellor swept those objections aside.

 So does a government have more power than it lets on? Why for instance, all that shilly-shallying about minimum pricing for alcohol? What about the hidden sugar content in our processed food (far higher than in France)? And what about, to take quite a different example, the sudden intolerance of female genital mutilation, 30 years after a ban came on to the statute book?

Yes, there are powerful groups that resist change in all these areas, but considerations also of health and happiness that are surely greater. If those who lobbied for compulsory annuities can be so summarily dismissed, maybe ministers can summon the courage to show other mighty vested interests  the door.

m.dejevsky@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Ashdown Group: Front-End Developer - London - up to £40,000

£35000 - £40000 per annum: Ashdown Group: Creative Front-End Developer - Claph...

Recruitment Genius: Product Quality Assurance Technologist - Hardline & Electric

£18000 - £24000 per annum: Recruitment Genius: The role in this successful eco...

Ashdown Group: QA Tester - London - £30,000

£28000 - £30000 per annum: Ashdown Group: QA Tester - London - £30,000 QA Tes...

Day In a Page

Read Next
 

CPAC 2015: What I learnt from the US — and what the US could learn from Ukip

Nigel Farage
 

If I were Prime Minister: I would create a government that actually reflects its people

Kaliya Franklin
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower