Minister for Pensions says erosion of real incomes is a "tradeoff" for economic growth...
WHEN THE man in charge of the British pension system says that pensioners and savers should just put up with what's currently happening to them, you know for certain that the government has turned its back on them, writes Jason Riddle of Save Our Savers.
Yet that is effectively what Steve Webb, the Minister for Pensions, said in a recent interview, claiming that the appalling returns for savers and pensioners are a necessary trade-off in order to get the economy back on its feet.
Usually we criticize politicians for being too short term in their outlook. Steve Webb, however, is focused on the future. He is rightly proud of his achievements, the triple guarantee for the basic pension and auto-enrolment, which he believes will get private sector employees saving. He is looking forward to passing legislation that will see the state basic pension rise above the level of means testing.
These changes should make pension saving more widespread and make fairer the treatment of savers at the hands of the benefit system. But they will not in themselves make saving worthwhile. That depends upon the government making a commitment to enact economic policies that protect the value of our savings
In the interview, the Minister stated that, "if we can make the economy prosper then all pensions benefit from that."
Grand words, but sadly, untrue. However much the economy may bounce back those pensioners who are already on fixed incomes, whose cost of living has increased by over 10% over the past two years, will not see the return of the money they have lost. Anyone who has recently purchased an expensive annuity and obtained a pittance of a pension will have only that to live on for the rest of their lives. For such people –who have been financially responsible and saved for their own future – the current situation is not a "trade-off". On the contrary, their standard of living for the rest of their lives is being written off.
For the rest of us with savings, our future prosperity will partly depend on current damage being inflicted upon our savings, which is not a very comforting thought.
Professor Webb said: "the mismanagement of the economy, the borrowing like there is no tomorrow, has landed us where we are – low interest rates and quantitative easing." But low interest rates and quantitative easing are undermining our economy every bit as much as excessive borrowing has.
Living within our means is the only way out of this crisis. The government may be cutting spending but, at the same time, it is devaluing the country's wealth. Low interest rates and inflation are reducing people's ability and willingness to spend. We have seen the disaster that resulted from an economy built on consumer debt, yet the government is persisting with policies that undermine all those who have been financially responsible and discouraging others from embarking upon saving.
The Minister for Pensions may yet construct the best pensions system in the world. We hope he does. But for as long as the government thinks that throwing savers to the lions is the way to save the economy, he is wasting his time and our savings.
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