Ending annuities is just the start of retirement reform

Great hay has been made this past week about the Government changes to annuities and what an amazing budget this was etc etc. I don't see it that way really, the change to annuities is sensible and brighter recent pensioners will wonder at the deep cynicism of the Government to propose a change only after 6 years of the lowest annuity returns of all time!

What is more interesting is thinking about where the Government is going and indeed society as a whole. Despite our Government's slowness on changing pensions and retirement strategy, it is actually a long way ahead of most OECD countries who instead have ignored this issue as too hard to deal with and left it for the future Government's to sort out.

However, with a huge increase in over-65's and indeed 70's and over-100's there are big challenges ahead. Plus we have the more to automation of many jobs which means the economy will produce fewer jobs in the near future at the same time as the population rises. Clearly, the younger population will not be able to support the older and wealth transfer down the generations will only last one or two before the Country is in penury.

A really radical solution is called for and I would suggest this, compulsory 10-year work breaks at 40, with a mini pension created for this time and state support for parents during this time. 40 is a good age as most people are still full of youthful energy and can live full lives. It's a much better time to enjoy yourself and typically one's young family at that time.

This break will reduce pressure on the need for job creation, particularly in a world where labour is transient in any event and roles can be filled more easily. Once the age of 50 is hit you can look forward to another 25 years of work before 'real' retirement at around 75. The pension needed post-75 is a lot lower than post-65.

The merits of the above are bountiful and help with the technology challenge we are facing too. Of course, if people do not want to stop work then they will not have to - similar to having children and paternity/maternity rights now. The benefits can be arranged to be advantageous to those who take the break, but it would not be compulsory, just financially and lifestyle attractive.

It's a radial suggestion now, but in due course we are going to have to think of very innovative ways of keeping the workforce engaged until a later age as well we to share around employment opportunities in the age of automation.

Budget 2014

Amazing, incredible...ermmm here is my quick review:


a) A bad start
b) Sagged in the middle
c) Tailed off towards the end

So what was the point of that then, nothing exciting and everything else announced months ago. I almost pity the print journalists who have to try and make copy from this!

Don't We Just Love Pre-Budget Lobbying?

Spring is here, and it falls to the unhappy lot of the corporate PR to be instructed from on high to demean themselves by placing articles seeking to change the Chancellor's mind on some heavily-trailed Budget measure.  One can imagine the effect this tosh has over the Osborne family breakfast table. "I see in the Telegraph that EDF are asking for some more free cash, George."  "Oh really, dear? Then I will hasten to the Treasury to do their bidding this very morning."  At best, these daft articles are a kind of pre-emptive whinge.

In their own way they can be amusing, though, for all that.  I particularly like it when they place their ads on Guido's blog; and C@W is always open to pre-paid contributions ...  But it is to the Telegraph we turn for these two closely related gems:

Keep carbon tax, say green and nuclear energy chiefs ;  and

Britain has the right energy policies in place, it just needs to keep the costs down

The latter is under the by-line of out old EDF friend, chief frog Vincent de Rivaz lui-même.  Not satisfied with his extravagant Hinkley Point C deal, he also wants to preserve the windfall for his existing nuclear fleet that is the Carbon Price Floor - a boon which is altogether more tangible and immediate than the sometime-never Hinkley, being cash-in-hand right now.  Pretty brazen to use the words "just needs to keep the costs down", but being in lobbying mode is a shameless business (he invokes Ukraine and the floods, too, though inexplicably fails to mention Chinese inward investment).

Tough shit, Vince, but you had it coming.  Live by the subsidy, die by the subsidy.

Spotted any other entertaining budget-whine for our delectation ?

ND

The most politically astute tax cut for Budget 2014: Employers NI

With an election coming up and a budget to plan for in a few weeks time, the Government is scratching around for candy to offer the masses in a desperate, if doomed, attempt to prevent a Labour Government coming to power next year.

Whilst the Liberal Democrats are all too keen on raising the tax free threshold to £12,500, there is precious little the Government can do in terms of the basic or higher rates of income tax. Changing these thresholds costs billions, as does raising the tax free threshold. Far more than any offset that will come through higher growth.

Plus tax cuts like these fail on some of the basics, they don't really encourage new jobs or investment. Whilst being a success for the very low paid - few of whom vote for either Tories or the Lib Dems if we are being honest - the benefits are very limited for those on average incomes. Worse, on higher incomes, all sorts of manoeuvres such as withdrawal of child tax benefit, removal of the free allowance at £100,000 anyway, conspire to push the tax ceiling to nearer 50% in any event.

The small return of cash to people is always welcome, however it is limited in its impact to help the 'cost of living crisis' as the vast sums returned are spread over so many millions that it ends up being a few pounds a week here or there. How this will turn into an election winning formula is unclear.

However, there is a saviour at hand in the form of removing another stealth tax. All employers pay this and it is a bewilderingly complicated formula to work out who should pay what. A classic example of the mess that our tax system has become with constant fiddling.

Nonetheless, companies pay around 12% on each employee they employ and this is a direct tax on employment. Not only that, it is a direct tax on salaries as companies staff costs are by default higher and they have a negative incentive to pay people more, as it has a double cost for them to give pay rise.

Cutting this rate by 2% would reduce companies costs of employment and potentially increase growth in the job market. Furthermore, with the right kind of 'nudge' messaging to the business community which is firmly behind the Government, it can also be used as a way to begin the process of increasing pay in a more sustainable way than has happened over the past couple of years. Companies would not be expected to pass on all of the saving, but sharing the benefit with employees would be a win-win compromise.

It's the only pro-growth cut that can please business and all employees at the same time.