Tuesday, October 12, 2004

Pensions, Savings and Investment

Sent: 12/10/2004 16:42

It was Chancellor Brown who raided the pension funds helping the treasury to £5 billion per year of savers money! This along with other Brownite polices undermined the confidence of savers and investors alike and destroyed the credibility of pension funds. As a result British companies have been forced to double contributions to occupational pension schemes to £37 billion per year since Labour came to power.

The CBI DG, Mr. Digby Jones complains that employers have been wrongly cast as the villains of the pensions piece. He says much of the blame for the crisis lies with the decision to abolish the dividend tax credit in 1997 costing pension funds £5 billion a year, a move he describes as "a grave error".

This coupled with regulations obliging pension fund holders to sell shares to maintain a pre-determined cash reserve to investment ratio has impacted negatively on the stock market. This has led to a ludicrous catch 22 scenario where on a falling market pension fund holders are required to sell more shares to maintain the ratio between cash reserves and investments which drives the market down further; requiring fund managers to sell yet more shares which drives the market down still further, ad infinitum. This is a classic case of bureaucrats meddling in affairs of which they have little or no acumen or experience. There must be a better way of maintaining the financial integrity of pension funds than this!

It is not surprising therefore that the FTSE 100 has lagged well behind other international stock market indices since Labour came into power, largely because pension fund holders have been divesting themselves of equities. This is catastrophic for pensions, savings and investment, a disaster already well into the making.

Worse still, instead of admitting this gravest of mistakes, Mr. Brown prefers to blame us for his monumental error of judgment. Instead of righting the wrong he wants us to make up for his shortsightedness by making us work longer and forcing us to save what we do not have, thus only adding insult to injury.

Mr. Brown does not tell us, however, how much he thinks we will have to save over a lifetime to ensure a comfortable retirement. With interest rates at 3-5%, every £100,000 saved will yield a paltry income of £3000 - £5000 per year, barely enough to run a motor car let alone pay for lighting, heating, phone bills, clothing, insurance and many other essentials. Unless we have saved half a million pounds, we can forget about holidays in the sun. Perhaps Mr. Brown can explain how a middle- manager with a student loan and a mortgage can save £500,000 for retirement over his or her working life when interest on savings is so low, equities are depressed and house prices are falling? Even more to the point how do the millions on minimum wages save for their old age when they cannot even afford to rent their own accommodation let alone take on a mortgage, even with low interest rates? No Mr. Brown, the sums do not add up. This is cloud cuckoo land.

This must surely offer political hay for opposition parties and yet they have failed abysmally to expose in any meaningful way, this monumental error of judgment by Mr. Brown, one that so gravely puts at risk the futures of millions of hard working British citizens? Unless somebody comes up with policies to reverse the damage done by Mr. Brown to our savings and our stock market, we are headed for the mother of all busts. Mr. Brown's famous boast that thanks to him we have left behind the bad old days of boom and bust will look very shallow and hollow then.

However, the Chancellor's poison could and should be the Conservative's meat. They are already in the last chance saloon. If they fail to win this election and Mr. Blair delivers the long promised reforms and improvements in public services (by no means certain) as well as a stablised Iraq in his third term, it will be the end of the Conservative Party. They have to win the next election or risk facing extinction. Unlike many commentators, I believe the good news for them is that it is extremely winnable but only if they tackle the issues that matter to ordinary people with far more dynamism and imagination than they have hitherto shown.

Pensions, savings and investment is one of many areas where they could make a real impact on voters minds, provided they do their home work and convey their message in an unequivocal manner and in a way that is easily comprehensible to the general public. They must go after this government and expose the weaknesses in its policies with the same tenacity as a bulldog in pursuit of a juicy bone. If there was ever an opportunity to show the long term damage of Labour's policies, the destruction of savings and investment is as juicy a bone as any Conservative bulldog could possibly want. More to the point, we want our savings and investment opportunities back. We want our future back.

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