Tag Archives: inflation

Pensions cuts – the real story

In these economically depressed times, Grumpy is having to modify his food buying habits, and look out thicker jumpers to wear after turning the heat down.

Sadly, I am not in receipt of the inflation protected, salary related, largesse I would have received had I spent my life working for the state or some quango. [Of course, at one time, large companies would also have had such pensions until it became clear that they were unsustainable by any affordable contributions and withdrew them.]

Rather, like most other people in the private sector, I set aside whatever monies seemed prudent at the time in a ‘money purchase’ (or ‘defined  contribution’) pension and live on income from that together with  the interest on my modest savings. I’m not going to complain here about the reality that monies from my increasing taxes go subsidise my fortunate fellow pensioners from the public sector, on the basis that if their unions were astute and powerful enough to negotiate their deals and governments were weak enough to pay them, then there is a certain market logic there that I salute.

No, my annoyance is directed towards the libo-conservacrats and hence towards their once fresh-faced leader, Mr Cameron. Although he is maybe too young (and, of course, far too wealthy) to have experienced the real, every day, corrosive effects of inflation, it is something which he must be acutely aware of.

The simple fact, however, is that we have a Conservative prime minister presiding over a combination of record low interest rates and high inflation, which is destroying the savings of a generation of pensioners like Grumpy and eroding their quality of life in the autumn years.

In 1976, when Dave was 10, we were ruled by ‘Sunny’ Jim Callaghan (of “Crisis ? What Crisis?” fame),  and inflation was in double digits at 16.5% , as it was in much of the period from 1973 to 1981. However, the then equivalent of the Bank of England rate was as high as 15%; In consequence it was at least possible to protect against the erosion of value of cash savings.

Now, under a Conservative leader, there is simply no way to hold cash in an interest bearing account which produces a positive inflation adjusted return before tax, never mind after Mr Osborne removes a substantial slice, going in part to pay for the golden pensions of the civil servants in his department. Setting aside the abject failure of the Bank of England to execute the primary task Gordon Brown charged them with – managing inflation – the coalition does not seem to have a strategy for dealing with the impact of this  on the rapidly crystallising issue of an ageing population.

This Grumpy could maybe accept on the basis that they were dealt a bad hand by messrs Blair and Brown. However, one of the very first acts of George Osborne on taking office was to cut the income of pensioners with ‘drawdown’ schemes by 17%, and increase the tax on transfers in certain circumstances of the same  by 20%. So just as the income from private pensioners savings disappeared in real terms, Osborne kicked them in the nuts by slicing a fifth of their pension income – compare this with the modest revisions in the public sector which have caused the most extensive strikes for 30 years. A Conservative government!

Grumpy  will be  having more suppers of bread and cheese (albeit with HP sauce for flavour); it will also mean that the next time a conservative candidate calls to canvass for his  vote, the conversation will be short.