08 Feb My Position on Pensioner Bonds
Today I went on record to say that the pensioner bond should not be a priority and that it is a form of intergenerational theft.
I did not come to this conclusion lightly. It is, after all, important to encourage more people to save and vital that our society looks after its vulnerable elderly.
Here I want to explain why it is that this policy represents something deeply awry at the core of our politics – this is that successive governments in recent years have failed in their fundamental duty to plan for the future.
Such planning is critical as we face a perfect storm: rising debt and an ageing population. The challenge for governments is that the ratio of those in work to those in retirement is changing: relatively fewer people in work supporting a much greater (and increasing proportion) of retired people. Already, by some estimates, if we add the nation’s debt to personal debt and then add public sector pension liabilities, state pension liability and PFI debt we arrive at a total north of £5 trillion.
Our current Conservative-led government has been very successful at creating the economic environment for over 1.7 million private sector jobs to be created since it came to power in 2010. But we cannot meet the immense challenges if, at the same time, we persist in subsidising retirement and disincentivising younger wealth creators. And the fact is that the current settlement is not so kind to those in work.
Quite understandably, young people looking ahead want to know that they will be able to get a job, afford a home, raise a family and then enjoy a secure retirement. Yet it is by no means clear that all of this is on offer to them. The government has, for example, not had much success in building enough homes for young people to be able to afford their first homes. It has also guaranteed above inflation increases in state pensions and protected universal benefit for all pensioners. This is a problem because the state pension system is, in effect, a Ponzi scheme: people who are currently in work fund those who are currently retired.
It should come as no surprise that people under 40 are less likely to vote than people over 40 when the main parties are competing to make attractive pre-election offers to those in retirement.
Instead, we have to strike a balance between the needs of the elderly, who are often on fixed incomes and less able to work for extra income, and incentives for young people in work who need to believe that the social contract currently in play in Britain is one that will be there for them when they retire.
Pensioner bonds do neither of these things – in fact, they act as a disincentive to younger people when our priority should be to incentivise them to work harder and be more productive. The problem is that, in order to afford to offer such preferential rates to a specific section of the community, the Exchequer has to borrow more money, a debt which will not be repaid by those benefitting from the bonds but by future generations. Although the cost of this policy (somewhere in the region of £350m) is relatively modest, it (along with other pensioner benefits) sends the wrong message to the younger electorate.
I believe that the Conservative Party is the right party to shape a vision for the long-term future of this country that provides security for the vulnerable in their retirement and a profound understanding that the country we bequeath to future generations will deliver a healthy retirement for our children and their grandchildren. Sadly, pensioner bonds will be of little help.