If George Osborne does one thing in his Budget it would be addressing the damaging impact of policy on older people's lives. So, what are the problems and what could the chancellor do to improve things?
Ultra low interest rates and high inflation have hurt older savers trying to live on their income, while quantitative easing has wreaked havoc on our pension system. Annuity rates have fallen sharply since QE started, leaving increasing numbers of pensioners permanently poorer, because once bought, their annuity can never be changed. This is a huge issue as around 450,000 annuities are bought each year. Pensioners who chose income drawdown instead of annuitising have also suffered, because the amount of income they can withdraw each year falls as gilt yields fall.
Those who saved hard and did 'the right thing' are being punished for it, which is dangerous, particularly as council cutbacks are forcing older people needing care to sell their homes, because government never encouraged saving for later life care.
QE's impact on bond yields has damaged our pension funds, increasing deficits by over £90bn. This has forced firms to fund their pension schemes, rather than business expansion and has even bankrupted some companies, leaving scheme members with reduced pensions.
To address these issues, the chancellor could consider the following measures.
Rather than QE gilt-buying, he should use new money to underpin pension fund investment in infrastructure projects. This would benefit pension funds, as infrastructure investing could be an ideal asset for them, offering long-term inflation-linked returns and some upside potential. Coupling this with measures to underpin lending to small firms, again perhaps funded by new QE money, would stimulate the economy and jobs far more than buying gilts.
Issuing longevity gilts (rather than the rumoured 100-year bonds) could improve annuity pricing, pensioner incomes and pension deficits.
The chancellor should change ISA rules to help older savers and allow people to use the full annual allowance for either shares or cash, rather than only half in cash. Pensioners who cannot risk stock market investing should surely be able to have more of their meagre savings income tax-free.
Why not also introduce an additional annual "care ISA" allowance, where the money saved must be used to pay for care (for oneself or someone else). This would start us on the long overdue path of incentivising saving for later life care needs.
Ros Altmann is Director General of Saga Group