A Budget For Tomorrow

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In the biggest shake up of pensions since 1921, Chancellor George Osborne has firmly asserted the 2014 Budget as the Budget of tomorrow. A Budget that will bring benefits, not to those who need it now, rather those in the future who he will be seeking the votes of in 2015: the old, the rich, the well-educated, all of whom happen to fit the bill of traditional Tory voters.

If you walked into any paper shop today, you may have thought that they only sold one paper.

“Vote Blue, Go Grey”, “Osborne helps the aged”, “Help the aged”, “Osborne’s Budget for pensioners and savers”, and of course the Sun’s “Win-Go!” were all the headlines of choosing on today’s front pages.

Economists and politicians both argue that pensioners were the big winners in yesterday’s Budget, with the Chancellor announcing that those approaching retirement will no longer be forced in to buying an annuity from pension providers. Instead, they can access their private pension independently.

It is evident that this move (along with his halving of the Bingo Tax to 10%) is a plan by Osborne to put the Tories in with a good shot of the 2015 General Election victory. I mean, he is also their election strategist as well as Chancellor of the Exchequer.

In the last general election of 2010, turnout for the over 65s topped the table at 76%, while the 18-24 year old demographic reached just 44%. With the globally increasing ‘grey’ vote as it is called,  Osborne has sniffed that the demographic to attempt to appeal to is the elderly. Can us young people have anyone to blame but ourselves? I address this issue in an article you can find on my other blog.

Also, if you take a look at the current composition of the Conservatives, much of them are old, who will be thinking about their retirement plans in their stately country home. None of them want to be forced in to taking out an annuity, heavens!

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Those working in the lower section of the income pile will be enjoying the new tax-free threshold being raised to £10.500, but will be highly unlikely to have the disposable income to set aside in a private pension pot. Furthermore, money is a fickle thing, and no doubt the process through which people will have to undertake in relation to these new freedoms could result in catastrophe for those without the financial expertise. Annuities are a traditional means of earning an income after retirement.

“The question will be – will there be proper protections and proper financial education so people don’t make the wrong choices and end up running out of their pension pot well before their retirement ends,” was the Shadow Chancellor Ed Balls’ argument. It takes a lot of knowledge to know the best deal nowadays, as banks and institutions are ever more reluctant to dish out advice in case they get it wrong and you blame them for your troubles.

And what if people run out of their pension? Those who run out will naturally become dependent upon the state for a state pension. Therefore, in placing trust in the elderly, Osborne puts in their hand the future of the whole economy, resulting in tax payers having to hold up those who fall through the new scheme.

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Annuities have become known as the most hated financial product in Britain because, if you die prematurely, the amount left in your pension is not attached to your estate. This means that those who are reliant on an annuity will be unable to pass on any of their remaining pension, unless they take out a Joint-Annuity where they leave a percentage of their pension to their partner or dependent when they die. Great news for those who have a massive pension stored away who will now be free to pass on their remaining pot in inheritance.

Of course, this will mean they have to pay inheritance tax, and a tax on their actual pension. Here’s the other factor Osborne took care to gloss over. If everyone went mad and started taking out their pensions, the Treasury would lose out. However, the new plans mean that the money taken out of the pension will be taxed, therefore, the Treasury make up for their losses in tax.

There may be some long-term benefits to those not directly effected by the changes to pensions.

The Guardian writes of a “fear” over a buy-to-let culture which will erupt due to the new announcements. Pensioners will use their new freedoms to invest in another property to rent out. Where the problem lies in this I fail to see. The current housing market is pretty abysmal for low earners and those being hit by the Bedroom Tax. The government’s Help to Buy scheme has hoovered up most of the houses that these people would be looking to buy. My opinion is that the pensioners who are buying to let will help those looking for cheaper accommodation to rent out if they cannot afford to buy their own house. Again, the recurring theme we seem to be constantly cropping up on is investment.

Osborne’s invested this Budget in courting the older voters. The ever growing population of people who will most benefit from yesterday’s announcements are the voters Osborne needs to secure in his back pocket, thus increasing the chances of a 2015 Tory government. The new childcare plan where the government will pay 20% of the cost (up to £10.000) is to come in to force in the autumn of 2015 – “another great reason to go Tory next year!” is the message here.

Cater to the largest demographic, the more likely voters, make the Conservatives more attractive than UKIP and everyone else will, of course, be better off in the long run, they say.

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