LONDON (SHARECAST) - Losing out? What has seemed most unfair has been that those who have correctly “played by the rules” by saving conscientiously, paying down debts and spending reasonably, have been the ones that have suffered the most over the past few years.
From lacklustre stock markets to record low interest rates, the plight of the wise and careful citizens seems to have been ignored in favour of the reckless borrowers (encouraged by equally reckless lenders) who have benefited from the lowest interest payments in living memory. Add to that the plight of the pensioners as often, quite rightly, highlighted by that doyen of the pension world, Ros Altmann, who has underlined the new poverty being suffered, especially for those coming up to retirement and having to take that great financial bet on buying an annuity at a time of the lowest ever known returns.
With QE {quantitative easing) having significantly suppressed the income returns, what would have been a significant financial pot for a retirement income would now look almost derisory. Of course, this affects those who, by their age now, have no time to try and redress their financial plight.
In fact now when I speak at schools it is quite interesting to judge the reaction to how much the pupils think they will need to retire on. On the basis that £100,000 isn’t going to get you much more than £5,000 per annum, just how much do they think they will need to live on? The answer normally comes back as at least £25,000 – so that equates then to at least half a million pounds being saved into a pension pot! It sounds awful and positively frightening until you are able to explain how best this can be accumulated, but as we all know it takes time – a long time, and so the sooner they begin the better.
However, there is one vital problem – no one is telling them what to do or how – with a few notable exceptions. There are some simple initiatives that can be carried out here and especially in the maths curriculum just to make the demands for all out financial needs more understandable and realistic.
There is another way that the authorities can help – encourage saving. The initiatives around the new auto enrolment pension scheme are important, but unless we educate people into the need for saving for their own and their family’s sake then it will fail through shorter term ignorance and greed, and not understanding the longer term benefit.
So some things that a radical government could consider:
- Redesign the pension into a lifetime scheme not just a lock-box for decades upon which you have to take a big bet at the end in order to get your income.
- Why does a pension die with you? Whilst some value can be left behind, the tax makes it barely worth it.
- Why not wrap together the ISA and the pension into a more flexible lifetime family savings vehicle which could be used as collateral for mortgages and other key family financing?
- Why not simplify the EIS and Seed EIS schemes into a more straightforward package and even include them within a greater ISA/Pension package?
Make it simpler and more will understand use it. That, after all, is what we want to achieve – more saving for family security and more finance being directed into business.
Some initiative and innovation here please.
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Time for India’s Big Bangra? (no not the sausage)
At last it seems as though the doors are creaking as foreign investment money might finally be allowed in greater strength into the Indian economy. The insurance and pension sectors could be the first beneficiaries as foreign investment ownership levels are raised from 26% up to 49%.
The Indian economy has come a long way from the old controlled economy of Mrs Ghandi where the domestic economy was protected from the evil vices of the foreigner. Now, though, there seems to have been a sudden burst of activity and almost a Big Bang of reforms from the Prime Minister Manmohan Singh with a wave of economic reforms.
However, the doors have not been flung open but rather left ajar as the debate over foreign supermarkets and department stores is still creating much domestic angst. It is really a battle between Tesco and 50 million small shopkeepers in India. An understandable battle that was lost here many years ago. What the Indian government should learn from the craven cowardice of our own authorities is to put controls on the giants’ growth and to ensure that part of their role is to protect and support smaller local stores and not wipe them out.
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And finally ... Single party states sometimes find it very difficult to change and my colleague David Carroll highlighted this wonderful piece of Chinese propaganda from the Xinhua news agency when discussing the obvious merits of the 18th national Congress meeting of the Communist Party.
“The congress will further mobilise the entire Party and the people of all ethnic groups to march unswervingly along the road of socialism with Chinese characteristics, continue to advance scientific development and promote social harmony, and continue to improve people's livelihood and well-being, and strive for the building of a moderately prosperous society in an all-round way.”
I especially love the idea that we should be striving for a “moderately prosperous society in an all round way”.
Thus in the same spirit may I wish everyone a suitably mediocre week ahead.
LONDON (SHARECAST) - Losing out? What has seemed most unfair has been that those who have correctly “played by the rules” by saving conscientiously, paying down debts and spending reasonably, have been the ones that have suffered the most over the past few years.
