Ten years ago, George Osborne blew up the British private pension system. Because pensions are boring and complicated and move slowly, a lot of people didn’t really notice. But the shrapnel from the blast continues to ricochet today and is starting to hit.

Chancellor Osborne’s Budget on 19 March 2014 contained the surprise announcement of ‘pension freedoms’. Previously, people retiring with a Defined Contribution pension (a pot of money and very different to a Defined Benefit pension that is an entitlement to a certain income) effectively had to take their pension savings and use them to buy an annuity, a financial product delivering an income for life.

Under the Osborne reforms, once we hit the grand old age of 55, we are all free to use our pension money however we wish. We can buy an annuity, if we really want to. We can ‘draw down’ those savings and spend them gradually to support ourselves. Or we can spend the lot on a new kitchen, or to pay household bills, or, well, anything, really.

It’s hard to argue against ‘freedom’. Who doesn’t like the idea of letting people be free to make their own choices and spend their own money?

But sometimes our own choices, freely made, have consequences for others, even if those choices involve spending our own money.

Britain’s private pensions aren’t an entirely private matter

Pensions are a case in point. We have a range of public policies that seek to encourage and reward saving into DC pension pots because it’s a good thing if people have enough money to live well after retirement. Partly because that’s good for those people, but partly because if they don’t have enough money, taxpayers have to support them.

Given the very large sums that the taxpayer currently contributes to paying state pensions, this might seem a surprising observation, but the UK currently has a relatively ungenerous approach to state pensions – because of our relatively large private pensions.

QOSHE - A pension crisis is brewing - James Kirkup
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A pension crisis is brewing

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19.03.2024

Ten years ago, George Osborne blew up the British private pension system. Because pensions are boring and complicated and move slowly, a lot of people didn’t really notice. But the shrapnel from the blast continues to ricochet today and is starting to hit.

Chancellor Osborne’s Budget on 19 March 2014 contained the surprise announcement of ‘pension freedoms’. Previously, people retiring with a Defined Contribution pension (a pot of money and very different to a Defined Benefit pension........

© The Spectator


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