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Friday, March 21, 2014

A MASSIVE reason to market to the 65+

The UK has just had a 'budget'. This is when we learn how the government is going to change tax and spending for the coming months and years.

Normally, they are pretty boring. A few percentage point increases in tax  here - a few reductions in costs there. Some winners some losers.

The one that took place yesterday was very different.

Up until yesterday, when you reached retirement age you had limited options about what to do with your the pension funds. You could do nothing and leave them to hopefully gain in value. What most people did was to buy an 'annuity'. What the hell is that? This is the question that most people at retirement asked themselves. 

Let me simplify. Let's say you had accumulated £100,000 then your annuity would pay you approx £5,000/year for the rest of your life. Depending when you bought it and the finance company you selected could make a massive difference in the amount of money you received during retirement. When you died all the funds went to the finance company. All this changed yesterday.

In the future you can retire. Take your pension and spend the lot on a super car or whatever takes your fancy. The theory is that people will be 'sensible' and use their pension to fund their retirement for the next 20+ years.

If you believe that you will believe anything.

What our government has just done is to allow older people to buy whatever they want. Each year £12 Billion of funds go from retirees pensions into buying annuities. That is going to plummet.

The result is going to be a massive transfer of pension funds into spending. And I mean MASSIVE.

This might be great for the UK economy over the next few years in that it will stimulate demand but in the long term I foresee terrible problems. I expect a lot of the money will go into paying outstanding credit card and mortgage debt. That is going to be great for banks and credit card companies.

So if I were a company I would be thinking about how to exploit this one-time bonanza. If I were a policy maker I would tremble.

More than ever this is going to force politicians to face the 'next door neighbour question'. I think one bag of worms will be more than they can cope with! Dick Stroud

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