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The electioneering behind ‘blue sky’ pension ideas

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Various pensions stories from the last few days show how planning for the May 2015 general election is already taking over the political agenda.

The Prime Minister’s pledge to retain the triple-lock, whereby the state pension increases by the higher of earnings, inflation or 2.5 per cent, until 2020 will add strain to the public purse but David Cameron is focusing his attention on people who matter most to him– the ones who are actually going to vote next year. 

Labour and the LibDems have also made noises about keeping the triple-lock in place but their flakier commitments allow wriggle room to offer other spending commitments elsewhere if necessary.  

Pension minister Steve Webb’s interview in The Sunday Telegraph, where he floated the idea of switchable annuities, is another example of a politician focused on the grey vote. 

Although superficially attractive to savers fearful of being trapped in the same annuity until death and suspicious of what they consider to be profiteering pension companies, there are a number of practical obstacles.

Annuity Direct’s Alan Higham sets out some of the problems here. Forcing annuity providers to allow transfers would blow apart some of the actuarial calculations used to work out rates. Higham suggests this could lead to a 25 per cent fall in rates as the other alternative, exit charges, is likely to be unpalatable. 

But rather than unveiling a fully formed workable policy, perhaps the agenda was just to send a message to a very valuable part of the electorate that the minister (and his LibDem party) are alive to their concerns about rubbish annuities. And from this perspective it worked (front page of The Sunday Telegraph no less). 

This is not a novel approach to take. Anyone remember Deputy Prime Minister Nick Clegg’s “use your pension to pay for a mortgage deposit” launched at the 2012 LibDem conference? How about Grant Shapps’ call for lenders to offer “mates mortgages” when he was housing minister? Again the ideas were full of holes but pushed the right buttons and sort of made sense if you did not want to ask any awkward questions.  

Clegg’s mortgage deposit bright idea was splashed over plenty of front pages and led news bulletins before quietly disappearing the next day when the Treasury poured cold water on the plan by suggesting only 12,500 people would (possibly) benefit. But the message was sent (we understand your pain about not being able to fund a mortgage deposit and are looking at innovative solutions) and the job was done.

So don’t be too worried or surprised to hear plenty more  “blue sky” ideas over the coming months as politicians throw about headline-grabbing proposals that may not end up anywhere near a Parliamentary Bill but serve another purpose. 

Paul McMillan is group editor at Money Marketing – follow him on twitter here

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