So the much anticipated budget has come and gone. For me, the only bit that stood out was pension reform. A politically astute move – but we expect nothing less from the present Chancellor. The real billion pound question however, is whether this makes economic sense?
Perusing the Money Marketing site, they reported that Insurers’ share prices dropped sharply on the news with specialist providers Just Retirement and Partnership falling by around 50 per cent in value in just two hours. The Guardian reports Institute of Fiscal Studies director Paul Johnson said there are some genuine uncertainties about the effect of the policy.
He said: ”Most importantly it will likely make annuities even more expensive for those who do want to buy them. The market will become much thinner and there will be greater levels of adverse selection – only those expecting to live a long time will want to buy an annuity thereby driving up the price. There is a market failure here. There will be losers from this policy.”
Speaking in the House of Commons, pensions minister Steve Webb says the Government’s pensions reforms do not mean the “death of annuities” but will jolt insurers into creating new products –
“The industry will have to up its act because now people will have to take cash. If they want to take an annuity they will have to be persuaded it is value for money and there is market impetus to act. We have asked the FCA to ensure a good guidance regime is in place potentially using bodies such as The Pensions Advisory Service.”
Unsurprisingly, most of the mainstream media still continues to miss the point. There are however some rays of hope. Consider a recent blog in the UK Telegraph –
“The Chancellor told the House that Britain is now the growth star of the industrial world, galloping up to 2.7pc this year. The pessimists have had to apologise. Even the lordly IMF is admitting through gritted teeth that it failed to see the mini-boom coming. Yet growth is not the salient indicator. What may matter more is a current account deficit running at more than 5pc of GDP over recent months, the worst in a quarter of a century and by far the worst of the G7. It is not a “healthy” deficit driven by imports of machinery. It is a consumption spree. The household savings ratio has drifted down from 8pc two years ago to 5.4pc today. Output per hour has been falling and is now 21 percentage points below the G7 average, the widest productivity gap since 1992, according to the ONS.”
It seems like asset bubbles have become synonymous with “recoveries”. As for the pension reform that allows consumers to walk away with cash? Clearly this is meant to drive the consumer spending spree in the name of a further “recovery”. Fatca Compliance Singapore
In the meantime, according to the latest edition of the Global Financial Centres Index, a measure of the overall competitiveness of the world’s leading cities for finance, for the first time in its seven-year history, New York City has overtaken London as the world’s leading financial center (though only by two points, which the authors do note is “statistically insignificant”).