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Harness the power of pension fund money to stimulate growth
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Re-think QE - issue longevity gilts and lend directly to small firms
The Budget gives the Chancellor an ideal chance to show he understands the dangers of destroying confidence in long-term savings. Recent policies have constituted an assault on savers and the message being sent to younger generations is not to bother saving for their future, because the Government could just decide to take the money from you by stealth. Low interest rates and Quantitative Easing have wrecked the retirement plans of many who worked and saved hard for their future. Yet, pension assets and savings constitute a major potential source of benefit to the economy. Helping older consumers feel more confident and using pension assets to stimulate the economy directly would be a win-win for all, creating more growth and jobs than the current policy of buying gilts. We need measures to alleviate some of the worst impacts of ultra-low interest rates and Quantitative Easing and harness the power of pension fund money to help growth.
1.QE money should underpin direct small company lending, bypassing banks: Use any newly created money to underpin direct small company lending, bypassing the banks, would be far more effective than credit easing which still relies wholly on the banks to lend at decent rates. A 1% subsidy will not help if banks just increase their overall lending rates!! We should end the gilt-buying spree that has such dangerous consequences for our pension system and use any new money to set up a fund to lend or underwrite lending to improve growth and jobs prospects. £325billion has been spent on buying up Government debt, but there is precious little evidence it has stimulated the economy.
2.Issue longevity gilts to help improve annuity pricing and pension deficits: Issuing longevity gilts would be far better than 100-year government bonds. Pension and annuity firms would be better able to match their liabilities and taxpayers could benefit from cheaper short-term funding
3.Remove ISA investment restrictions to allow pensioners to hold all cash: The current low interest rate environment is penalising pensioners who cannot afford to risk their money in the stock market. They are only allowed to hold half their annual ISA allowance in cash. The Chancellor should remove these artificial restrictions on ISAs and allow investors to choose how to use their whole allowance. Encouragement of corporate ISAs and long-term savings for later life care needs would also be long overdue.
4.Use pension assets to fund infrastructure investing: By providing a government underpin, or guarantee of a future inflation-linked return, Government could kick-start investment in our outdated infrastructure which would help growth both short-term and long-term.
5.Don't undermine confidence in pension saving just as auto-enrolment starts: Any restrictions on pensions tax relief should have as little impact as possible on pension confidence. A temporary reduction in the annual allowance, or restriction of 50% relief would be less damaging than removing all higher rate relief.
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