As the pensions industry goes through the details of chancellor George Osborne’s historic pensions changes introduced in last week’s Budget the more radical they appear to be.
Unless there are little traps hidden away in the fine print, his changes to annuities will in time be seen as being as transformative as Bismarck’s introduction of state pensions – it is that big.
Already the naysayers are preaching that there are moral hazards to allowing ordinary people to get their hands on their life savings, conveniently forgetting that pensions are deferred pay, not a handout.
However, the full dimensions of chancellor George Osborne’s radical reforms have not yet been fully digested. If we were to reflect on the number of Pensions Acts and Welfare Reform Acts which had significant pensions elements, it will be obvious that we were going nowhere fast. And when we see how prime ministers have reshuffled pensions ministers since 1997, it makes a merry-go-round look as if it is standing still.
One great fear is that Mr Osborne’s Budget proposals have spelt the death knell for annuities and, as an unintended consequence, the policy change may even take down some traditional life offices with it. That is nonsense. The good life offices are no doubt hard at work on new long-term savings vehicles to replace lifetime annuities. We only have to look at our cousins the other side of the pond to see how the Americans have created a long menu of variable annuities.
What is really industry-changing about the chancellor’s Budget is not only the bold decision to take the annuity hand cuffs off those maturing pensioners, but the abolition of the false demarcation between cash and stocks and shares Isas.
Now people can save in long-term vehicles, be they pensions or Isas, and, who knows, at some convenient point the two may even merge.
Now that would be really transformative, with an element of compulsory saving and with access at key entry points – births, marriages, home purchases, university fees and deaths – based on the Singaporean Central Provident Fund.
One fear is that people will splash out on buy-to-lets. But with good advice they will no doubt diversify their sources of income.
In any case, in Singapore home owner-occupation is over 90 per cent and if we were to consider that Singapore got its independence in 1965 and at the time even Malaysia thought it was not worth fighting over. Now, it is the diamond in the developing world, a shining example of the very best of development economics.
To suggest, therefore, that the nation that gave the world the industrial revolution is incapable, or psychologically too exhausted, to outperform Singapore is a poor show.
That it has taken one of our youngest chancellors to revolutionise the pensions landscape is nothing short of remarkable. Some people may remember Tony Blair, just before coming to power in 1997, preaching about the Confucian model.