Posts Tagged ‘ed balls’

“The elderly are more likely to vote than the young.” That was what CityAM said this morning, in response to Ed Balls’ idea of increasing the retirement age.

Actually, Mr Balls was talking about ring fencing. The government is trying to make cuts, but certain areas are protected, will never be breached – never as in cross my heart hope to die, never.

So the NHS is safe. Education is safe, and state pensions are safe.

But maybe ring fences are a bit too solid, and never is too long a time frame. Part of the problem with the NHS is that the pendulum has swung too far to the other way since the bad old days of the 1970s. Back then doctors and nurses were grossly underpaid. Today many GPs are more like traffic police. They direct patient traffic to different specialists, but how much of what they do could be handled by well trained, experienced nurses?

As for nurses, maybe the entry level is too high. A better career progression path, with senior nurses taking on many of the tasks that used to be carried out by doctors is a good idea, but at the bottom end, maybe we need more SEN type nurses. So perhaps the NHS should be not so much be ring fenced, as have a new ring of confidence via a complete re-think on how it operates.

The NHS also needs a re-think in terms of the imminent retirement of the baby boomer generation, otherwise we have a nasty problem coming.

Talking of baby boomers retiring, did you hear the one about savings? It was told by Scottish Widows, and the story goes like this: one in five Brits are not saving at all; 40 per cent are not saving enough.

Is it right? Well, sort of.

It is true that the UK sits on a fault on the demographic tectonic plates, and the impending earthquake could be far more significant than anything fracking might bring. As things currently stand, the UK is heading towards a disaster of enormous proportions as the baby boomers retire, and find there isn’t enough money in the pot.

But what the UK really needs is a more dynamic economy, with more entrepreneurism. Greater savings may help if the money saved is used to fund investment and in promoting entrepreneurism. If, on the other hand, greater savings mean money sloshing around and lying idle, promoting consumer credit and mortgages, and pushing up house prices, then the catastrophe that is the imminent retirement of the baby boomers will be far more catastrophic.

As for ring fencing state pensions, Ed Balls actually said that the idea of cutting money spent on stage pensions in some way was being considered, but probably the result will be a rise in retirement age, rather than less pension income for those who are retired.

And on the topic of the UK fiscal deficit and government borrowing, it seems there is a choice: carry on borrowing and risk creating a massive debt burden for the younger generation, or impose austerity and risk deepening the downturn, imposing a massive burden on the younger generation trying to build a career.

Mr Balls is as populist as any of the politicians, and no more likely to advance unpopular policies that are in the common good, than anyone else, but at least Ed Balls’ new plan tries to deal with one of the problems.

The baby boomer generation makes up a large chunk of the electorate, however, which means they want higher house prices, higher pensions, a lower retirement age, and none of this talk about fiscal stimulus, for that will lead to more debt, which is immoral because that will leave a debt for future generations to pay.

For more see, Baby boomers: The tyranny of the Baby Boomers 

© Investment & Business News 2013

Here is one measure introduced by George that Ed didn’t seem to disagree with. Not that the Balls speech yesterday was easy to follow, and who knows what he really thought. But Mr Osborne elected to reduce the amount of tax deductible money that you can put into your pension in any one year.

Instead of £50,000 a year, you can now only enjoy tax relief on £40,000.

Of course the pension industry is up in arms. But frankly they miss the point.

Yes it’s true that the baby boomers amongst us need to find a way to secure more income for that future date when we retire. But is putting more in a pension really the answer?  All that pension firms do, hamstrung as they are by the regulator, is pour a big chunk of their investor’s money into bonds paying out yields that are less than the rate of inflation.

Here is a tip, if you want to find a guaranteed way to lose money and contribute to the UK’s malaise, put your money in safe assets, such as government bonds. And it is hard to think of a better way to blow your money than putting it into a pension.

What the UK needs is for savers to be a touch more proactive. If you are saving for your retirement, consider putting money into for example SEIS schemes backing start-ups, or into ISAs, or indeed a SIPP – that’s a Self-Invested Personal Pension.

Low interest rates and the gradual erosion of tax breaks on pensions may seem short sighted, but actually what UK plc needs is for its savings industry to be less risk averse. The great irony is that mortgage securitisation was designed to reduce risk. But when we are all at it – taking as few risks as possible – the economy stutters, and risk actually increases across the world.

The problem was not that the Chancellor has made a life a little harder for the pension industry; it was rather that he sent out a sign that he doesn’t get it.

Entrepreneurs’ income fluctuates wildly.  Some years are good, some years are bad. In his Autumn Statement, George Osborne reduced the lifetime allowance for pension contributions from £1.5 million to £1.25 million. Okay, that is reasonable. But what about an entrepreneur, who has put all spare money into his or her business year on year, and then suddenly starts to reap the benefits? Such an entrepreneur won’t have had the luxury of putting big slugs of money into a pension. But when finally the good times arrive, the opportunity to catch-up is removed because there is a £40,000 annual allowance.

A life-time allowance is reasonable, but an annual allowance discriminates against those who actually went out and created wealth, instead of putting spare money into a pension which squandered it on government debt, and buying low risk securities, consequently sucking dynamism out of the economy.

Neither George Osborne nor Ed Balls get this, because they have little real world experience.

©2012 Investment and Business News.

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The latest data from the Nationwide, Hometrack and Halifax on UK house prices was out last week. And for the second time in three months they were unanimous. They all had month on month house prices falling: Hometrack by 0.1 per cent, Nationwide by 0.4 per cent, and the Halifax index recorded a 0.4 per cent drop in September. It has been frustrating over the last couple of years observing these housing surveys. Each month they have seemed to contradict each other. But all three reported falls in July, and in August two of the three reported falls (Nationwide had prices rising), and in September this rare agreement thing has happened again.

Perhaps more to the point, on an annual basis all three had prices falling too: Hometrack by 0.5 per cent, Nationwide by 1.4 per cent and Halifax by 1.2 per cent.

Mind you, they might have prices falling but house prices are not exactly crashing.

Meanwhile, politicians are busy trying to dream up ideas to try to get prices up. Nick Clegg wants to use money sitting in pension schemes to fund deposits, while Ed Balls has mooted the idea of using income from licensing 4G to fund a cut in stamp duty.

But, as is their wont, while on one hand the government is trying to dream up ideas to kick start the property market – such as funding for lending – is the other hand is also busy coming up with ideas to derail the market. According to analysis from Morgan Stanley, banks could be forced to find an extra £22bn in capital to fund changes to the way in which mortgages are risk weighted. The issue is complicated. Under the Basel rules, banks are required to hold a certain amount of capital. And under impending changes they will need to maintain 10 per cent capital ratios – other than mortgages, that is. Mortgages are seen as different, and carry a much lower risk rating than other asset classes. And who chooses this risk rating? Why the banks themselves, of course. It turns out that some banks have put such a low risk rating on their mortgage assets that, in fact, they can achieve leverage of near 100 to one – or one per cent capital.

It is not difficult to understand why the regulator is worried about this. This may seem like a radical concept, but some might say that it should not be down to the banks to risk assess their own assets.

So far then it all makes sense. Banks should not be allowed to risk assess their assets, and should not be allowed leverage of around 100:1 on some mortgage debt. It is just that if the regulators’ perfectly reasonable reservations were taken into account, bank mortgage lending might crash faster than you can say ‘property snakes and ladders’.

And that brings us to the baby boomers – you know those people who are due to swell the ranks of the retired to record levels. According to research from Lloyds Bank, just over half (51 per cent) of potential home movers are looking to ‘downsize’ within the next three years, compared to just a fifth (22 per cent) looking to trade up to a larger property. It is not that rare for home owners reaching retirement to downsize. The Lloyds TSB report, however, found that the reasons for downsizing have broadened in these tough economic times. Whilst 59 per cent want to move to a smaller property that is better suited to their circumstances, a third of potential downsizers would like to move to a smaller property to help reduce bills. Almost two fifths would like to free up equity in the property, and almost one in three said they want to downsize to help support retirement plans. A fifth of those considering downsizing are looking to trade down earlier than expected, with the majority citing financial concerns as the key driver.

So there you have it. The government can try to nudge us all into saving more, but as the UK enters the demographic moment of dread – the retirement of baby boomers – we are set to see a rush of people downsizing, creating an influx of supply onto the property market.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here