Tuesday, 18 April 2017

David Cameron's Last Economic Wheeze....OPM Pension Fund Raid

What could have been a major discussion in parliament has been washed away in the mire of brexit and the Scottish indy 1, is the shift in private pension law. Previously pensions were managed via a very controlled move from pension fund over to a pay-out vehicle called an annuity. This suited the industry quite nicely because most of those reaching pension just carried on in ignorance to this and put it down to jargon and small print, allowing their private pension provider to continue control of their amassed small fortune.

However what Cameron, or rather his economic advisors desperate for growth drivers to inject fluidity in the economy,  noted was that this money is somewhat not the company's it is the pensioner's fund. There was a cash log-jam in the consumer economy to be unblocked just in time for the wave of baby boomers crashing onto the happy shore of retirement. 

 It suits Tory individual freedom of choice to move the law to making it very obvious that the pensioner has control of this in effect, lump sum. Now it has to be said that the pensions industry sell a premise which is building a million pound fund in order to give an annual dividend from interest of between two and five percent of the fund's top line value. Of course the pension's company and their fund managers hope to make a heck of a lot more over 10-20 years of payout of interest on that lump of cash, and over the 30 or so years of contributions have made a very tidy margin on everybody's payments collectively. At death the pension fund passes to spouse or next of kin, and is subject to death duties/ inheritance taxation . 

You could as a prospective pensioner, elect alternatively to balance annual income by drawing down from the pot as well as the interest, but that really would not suit the whole game the pension fund managers play - they need lareg sums to spread bet and expect above 5% ROI year on year as averaged over 10-20 years. Most people do unfortunetly die within 13 years of retiring, and that age is about to fall on average as the unhealthy baby boomers, who have enjoyed too much of fags, drink and nosh ups, hit the buffers earlier. So given you have a million pounds to offer say a £ 25,000 - 45,000 annual income from the old annuity route, you can see that taking 100,000 p.a. for ten years is attractive - in the context then if you do make it past average age of death at only about 77 y.o., and then letting your PAYE pension pick you up if and when you are in your dotage and need to sell your house anyway to fund nursing home

Now of course the government does nicely out of inheritance tax - eventually- but being able to inject a huge amount of cash which is sloshing around in pension company managed funds, internationally it must be said, then the country will gain by short term growth, as in the credit cycle before of the 80s and 1997-2008 periods, with the VAT reciepts and other tax revenues being high. Suddenly the finest crop of baby boomers born in 1950-1953 will discover that they can manage their own capital, and despite what ever smart alec IFAs say to them, they will want to spend, spend, spend and then rely on the state SERP PAYE pensions so many stayed in or had via state employment, for their really decrepit years, where capital penalises you by forcing up your charges in nursing homes.

Pensioners on average are of course not stupid and balancing capital extraction with interest payouts plus your true life expectancy, or qualiyears as some call it then fuck it, live for today..

..A year or two is positively geological time in politics these days , so a 'quick win' was to be had, injecting billions of otherwise locked up pounds into the consumer economy rather than the global investment banker network.

The essence of people's capitalism and self determinisation or just a credit bubble which will squeeze for example, buy to rent prices upwards? It certainly is a little cynical and possibly anarchic, especially if you are a Norwich Union fund manager (for example).

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