Pensions
The Economist rather boldly states on its UK cover this week, "How Labour wrecked your pension".It doesn't really back it up. It says the crisis in pensions is down to three things, 1) the bear market, 2) Gordon Brown's removal of the tax credit, and 3) Gordon Brown's means-testing, which is putting people off saving.
The first it admits is not Gordon Brown's fault. THere has been some attempts elsewhere to say that the UK stock market has performed less well than others, as a result of Labour's policies. It's hard though to actually justify this factually -- the correlation between economic performance and stock market performance is not very good, and what matters is the UK market's valuation (forgetting for a moment dividends), not its return over the years. This still seems on the high side, if not very much so. Furthermore for people who have money-purchase pensions (ie most people in the private sector) what really matters is the value of shares when you retire -- if they're cheap now then that's actually a good thing if you're not retiring for years (though of course cheap now should technically means cheaper later). The Economist was a strong believer that stock prices were overvalued in the late 1990s, thus it would believe people investing in shares were getting a bad deal then.
The second, which is said to have cost £5bn a year, is presumably reflected in the share price, so is double-counting.
The third sees the Economist on stronger grounds. It says that Brown's means-tested benefits effectively introduce a 40% to 91% marginal tax rate, i.e. for every extra pound of savings you lose 40p to 91p in state pension, thus making it not worthwhile to save. There are a few minor criticisms one could make e.g that this has been recent innovation so can't explain years of 'under-saving' and that it seems unlikely that anyone under 50 would be put off, given the potential for changes in the law. But more important given the cover headline, in now way can this be said to have 'wrecked your pension'. The point is that people are getting the same level of pension, or thereabouts, not a worse one. He might have wrecked the states finances but not people's pensions.
Despite getting this wrong, the magazine's suggestion, of raising the retirement age, seems sensible, particularly if it goes hand-in-hand with a generous state pension.
Update: In fact the Tories (and Lib Dems) are making much of the running. Will Hutton's excellent column rightly praises David Willett's contribution.
posted by Matthew @ 9/19/2004 06:59:00 PM
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