George Osborne pictured during the Conservative conference in Birmingham last month. Photograph: Getty Images.
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Falling wages are still spoiling Osborne's boasts on growth

The Chancellor is still confronted by the awkward truth that for most people there is no recovery at all. 

In the current global economic climate, growth of 0.7 per cent in the third quarter, as announced by the ONS today, is more than respectable. Output is down from the 0.9 per cent recorded in the previous three months but George Osborne can still boast that "[we] lead the pack in an increasingly uncertain global economy." 

The problem for the Chancellor remains how unevenly the proceeds of this growth are being shared. When wages briefly drew level with inflation earlier this year, many claimed that what Labour called the "cost-of-living-crisis" was over. The Tories argued that wages were a "lagging indicator" and that higher output would translate into higher salaries. As Osborne remarked after the publication of last year's third quarter GDP figures, "If Britain is growing then the finances of Britain’s families will start to grow." 

Yet a year later, real wages are still falling. Inflation stands at just 1.2 per cent but pay growth is even weaker at 0.7 per cent. Even after six years of falling wages, the longest squeeze on living standards since the 1870s goes on.

When confronted with this fact earlier today by ITV News, which warned there was no "feel good factor" in the UK, Osborne replied: "I simply don't accept that", adding that growth in GDP meant "more economic security, it means more jobs, it means a brighter future". By this, the Chancellor means that those who are now in work (albeit on low pay) are better off than they were when they were unemployed. But while the near-record level of employment should be welcomed, this doesn't conform to most people's definition of a recovery. Even the GDP figures are less impressive than they might appear. Output is now 3.4 per cent above its pre-recession peak but the population has grown by 4.5 per cent over the same period. In other words, GDP per capita is still more than 1 per cent lower than before the crash. 

It's for this reason, among others, that while the Tories lead Labour by 16 points on economic management, they still trail them on living standards (as Mitt Romney did Barack Obama). By posing the "Reagan question" in May 2015 - "Are you better off or worse off than you were five years ago?" - Miliband hopes to trump the Conservatives' advantage on the deficit and growth. 

Even more worryingly for the Tories, the slowdown in GDP, which is likely to continue in the months ahead, means that wages could fall further still. The one hope for them, perhaps, as I write in my column this week, is that the darkening global economic climate will convince voters that it's too dangerous to change captain when the storm is still raging. As Labour's poll boost during the financial crisis demonstrated, turmoil can be good for governments. It's with this in mind that Osborne framed himself today as the man to shield voters from the vicissitudes of the global economy. He said: "The UK is not immune to weakness in the euro area and instability in global markets, so we face a critical moment for our economy. If we want to avoid a return to the chaos and instability of the past then we need to carry on working through our economic plan that is delivering stability and security.”

George Eaton is political editor of the New Statesman.

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Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: products-and-investments/ pensions/pensions2015/