Pensions minister Steve Webb. Photo: Getty
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How are the government going to build a pension system that works?

Most people want to “give their money away to someone whom they can trust will use it wisely to generate a income when they retire”.

The budget announcement allowing savers to choose how they spend their retirement savings may look a political coup. But to suggest it addresses the issue of how we provide pensions is a misuse of the English language. In fact it begs this question, “if people do not buy annuities, how are they to able to provide for themselves throughout their retirement?” Because an annuity is a pension; that is “a regular payment made during a person’s retirement”.  So, if you don’t buy a pension when you retire, how are you to ensure you have enough to look after yourself as you grow older?

Let us be clear. The Chancellor had good reason to abandon annuities, because they are such poor value for money. Today, someone retiring at the age of 65, who had saved £100,000, and wanted to buy a pension annuity which kept pace with inflation, would only be paid about £3,600 a year. In other words they would need to live until they were 93 just to get their money back. Fifteen years ago, they would have received much more. But the combination of low interest rates, and destructive competitive forces put pay to that. Annuities are bad value, and the government had no wish to face a grey electorate, which it had forced to purchase them.

But it doesn’t address the core problem. Because if you don’t buy an annuity how do you know that you will be able to look after yourself in retirement? For those in the public sector the answer is easy. Their pension savings is designed to generate an income for life. That used to be the situation in the private sector as well. But successive, and sometimes well intentioned regulation, has resulted in that pension system slowly being abandoned.  The government’s latest announcement is just another nail in the coffin. Retirement savings no longer need to be used to buy a pension - they are rather a pot set aside to give yourself a golden handshake when you stop work.

So let’s consider the prudent hard working person who retires, at the age of sixty five trying to plan for their future. If they don’t buy an overpriced annuity what do they do? What happens when, in their late 80s having done everything by the book, they discover they are running out of money. What future do they face, when, despite their playing everything by the book, their savings have run out? Is that the best we can do for people who have worked hard, been prudent, planned and saved?

And that is assuming that they have negotiated their way around the siren voices of financial advisors who will doubtless have gone on a spree of “innovation” to help invest the savings of those who are no longer buying annuities. Those who remember the last attempt to “free pensions” in the 1980s will also remember the ubiquitous pensions’ mis-selling scandals which followed.

What is needed is a pension system which works. In all the research which the RSA has done, most people want to “give their money away to someone whom they can trust will use it wisely to generate a income when they retire”. That simple system, a comprehensive private pension system, is lacking in the UK.

However, across the North Sea, in Holland and Denmark, they have a private pension system that works on that basis. You set aside your money each year and receive a pension in retirement. Indeed their simple well designed systems mean that, if a typical Briton and a typical Dutch person, both save the same amount, have the same life expectancy and retire on the same day; the Dutch saver will get a 50 per cent higher pension than the Briton.

That is the challenge for the government. Not the further abandonment of the inadequate British pension system, but the building of a new one that works. There is no perfect solution, but there are approaches which are far better than those we are pursuing in the UK today. They are systems which have gained political consensus, and stood the test of time. They were not built by surprise announcements in the budget. Such announcements about the pension system, made in haste, and spun as a political coup, are often ones which old people, many years later, repent at leisure. So let’s make sure that the Chancellor’s announcement is not a further retreat from a broken pension system, but rather that it clears the space for a new system that works.

David Pitt Watson is Director of the RSA Tomorrow’s Investor programme. He is an Executive Fellow in Finance at the London Business School, and founder of Hermes Equity Ownership Service, the largest shareholder stewardship programme of any fund manager in the world

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A tale of two electorates: will rural France vote for Emmanuel Macron?

His chief rival, Marine Le Pen, was campaigning as the “candidate of the forgotten” years before Donald Trump entered politics.

It was a wet night in Paris, but hundreds of people were queuing outside the Antoine Theatre. It was standing room only to see Emmanuel Macron tonight, as it has been for weeks.

The 39-year-old former investment banker gave his usual energetic performance, delivering a well-practised pitch for a progressive, business-friendly and unabashedly pro-European France. His reward: a standing ovation and chants of Macron, président!

This theatre appearance on 8 March was an appropriate stop for a campaign that has been packed with more political drama than a series of House of Cards. Ahead of the first round of voting in the French presidential election on 23 April, the centrist independent has gone from underdog to the man most likely to beat the Front National’s Marine Le Pen. His other main rival, François Fillon of the right-wing Republicans, has been hampered by allegations that he paid his wife and children as parliamentary assistants, despite scant evidence of them doing any work.

Macron, meanwhile, has been attracting support from disenchanted voters on both left and right.

“It’s a new party, a new movement, a new face,” said Claire Ravillo-Albert, a 26-year-old human resources student and ex-Socialist in the queue outside the theatre. “We’re worlds away from the old Socialists and the Republicans here.”

Macron is not a typical outsider, having made millions in banking before serving as an advisor to François Hollande and as economy minister from 2014 to 2016. Nor can his ideas be described as radical. He is “of the left”, he says, but “willing to work with the right”.

For many he seems to embody an enticing alternative to the tired political class. Macron has never run for office before and if successful, would be the youngest president of the modern French republic. Many recruits to his one-year-old party En Marche! are young and relatively new to politics.

“I think he’ll change the French political landscape, and we need that,” said Olivier Assouline, a bank worker in an immaculate grey suit. “He knows business, he knows the state. I think he’s the right person at the right moment,” said the 44-year-old, who previously voted for right-winger Nicolas Sarkozy.

Many queuing for the rally were underwhelmed by Socialist achievements over the past five years – not least the dismal state of the economy – and had little enthusiasm for Fillon, a social conservative and economic Thatcherite.

Macron’s manifesto sticks firmly to the centre-ground. He has promised tax cuts for companies and millions of poor and middle-class families, as well as a few offbeat ideas like a one-off 500-euro grant for each 18-year-old to spend on books and cultural activities.

“With his central positioning, Macron is taking from everywhere – he has the capacity to seduce everyone,” says Frédéric Dabi, deputy director at the polling company IFOP. They estimate that Macron will take half the votes that went to Hollande when he won the last presidential election in 2012, and 17 per cent of those that went to runner-up Sarkozy.

Outside the theatre, the line was split between voters from the left and the right. But there was one word on almost everyone’s lips: Europe. At a time of continental soul-searching, Macron’s converts have chosen a candidate who backs the European Union as a guarantor of peace and celebrates free movement.

“He’s unusual in that he puts that centre-stage,” said Emma, a 27-year-old legal worker who preferred to be identified by her first name only. “Macron offers a good compromise on economic issues. But for me it’s also about Europe, because I think that’s our future.”

With Fillon and Socialist candidate Benoît Hamon both languishing behind in the polls, the second round of the presidential vote, on 7 May, is likely to be a contest between Macron and Le Pen. These are both candidates who claim to have moved beyond left-right politics, and who are both offering opposing visions of France.

This is also a tale of two electorates. Le Pen was campaigning as the “candidate of the forgotten” years before Donald Trump entered politics, traipsing around deindustrialised towns appealing to those who felt left behind by globalisation.

In the queue to see Macron were lawyers, PR consultants, graphic designers; students, gay couples and middle-class Parisians of multiple ethnicities. These are the representatives of a cosmopolitan, successful France. It was hard not to be reminded of the “metropolitan elite” who voted against Brexit.

Macron has called for investment in poorer communities, and his campaign staff pointedly invited onstage a struggling single mother as a warm-up act that night.

Yet his Socialist rival, Benoit Hamon, accuses him of representing only those who are doing pretty well already. It is hard for some to disassociate Macron from his education at the Ecole Nationale d’Administration – university of choice for the political elite – and his career at Rothschild. One infamous incident from early in the campaign sticks in the memory, when he told a pair of workers on strike: “You don’t scare me with your t-shirts. The best way to pay for a suit is to work.” For Macron, work has usually involved wearing a tie.

IFOP figures show him beating Le Pen soundly in when it comes to the voting intentions of executives and managers – 37 per cent to her 18 per cent. But when it comes to manual workers, she takes a hefty 44 per cent to his 17. He would take Paris; she fares better in rural areas and among the unemployed.

If Frédéric Dabi is to be believed, Macron’s bid for the centre-ground could pay off handsomely. But not everyone is convinced.

“He’s the perfect representative of the electorate in the big globalised cities,” the geographer Christophe Guilluy told Le Point magazine in January.

“But it’s the peripheries of France that will decide this presidential election.”