Today is Pension Freedom Day. Hooray.
For decades the options for those with Defined Contribution personal pension schemes (compared with those lucky people with Defined Benefit aka Final Salary schemes) has been limited.
You could cash in your pension pot, after a lifetime of working, and buy an annuity for the rest of your natural days. You would then have a secure, fixed income. That income would be less if you wanted it to increase each year in line with inflation, or if you wanted your surviving spouse to receive a continuing proportion, for example.
There are other nuances but essentially the downsides of an annuity are that the insurance company benefits if you snuff it before the actuarial tables say you will, and the taxation implications were always punitive. Not attractive, as I wrote in an earlier article.
But from today, you have much greater choice and flexibility over your pension fund (after reaching 55).
So I give a rousing three cheers to George Osborne and this Conservative government. And I’m not ashamed to shout it from the rafters.
It’s my money. I’ve worked damned hard – well, ok, those 6 years in Bermuda weren’t all that demanding – all my working life, and I deserve the right to make my own choices about what to do with it.
In broader terms, this is a metaphor for capitalism v socialism. The political right want to decrease taxation – personal, to maximise the disposable income in your pocket each month, so that you can decide where best to spend it; corporate, to encourage businesses to invest in people and physical assets. And yes, to make a profit, which should NOT be a dirty word.
The political left believe in increasing taxation to maximise taxes because they want to spend more on public services. Because they know better than us what we need. The Nanny State.
I know which philosophy I prefer. Capitalism – with a social conscience, of course. Socialism doesn’t work, in economic terms. It scares away the wealth creators, discourages inward investment and inevitably causes a downward economic spiral.
I know how I’m voting on May 7th. But if Messrs Miliband and Balls win – with or without the help of a rainbow coalition – at least I’ll be able to buy a car with my meagre pension pot, and drive off to another country. Before they change the rules again.