THE loosening of restrictions on how people access money built up in private pensions means ‘Lamborghini granny’ and others could be casualties of poor financial decisions, writes Stephen McGinty
Politicians and the media take great delight in lifting up an idea and stowing it away in the boot of a particular car, which they then drive at high speed into the public consciousness.
In 1996, Tony Blair told a story at the Labour Party conference of meeting a former Labour voter polishing his new Ford Sierra in the driveway of his recently purchased council house and how the man had switched to the Conservatives as he feared Labour would take back in taxes and increased mortgage payments what he had worked so hard to own.
The man epitomised the target voter New Labour had to win over if they hoped to secure the 1997 general election, but as the meeting between Blair and the anonymous voter had taken place back in 1992, Alastair Campbell spruced him up and decided to characterise him by the car’s replacement model, and so “Sierra Man” became “Mondeo Man”, which had the added benefit of a memorable and alliterative ring.
A few months after “Mondeo Man” took to the road, he was joined by “White Van Man”, who was the inspired invention of Jonathan Leake, the transport correspondent of the Sunday Times with whom I worked in Wapping. (Jonathan had a habit of commenting on my choice of dish in the staff canteen: “Stephen, why is all your food brown? Don’t they have vegetables in Scotland?”)
My recollection is that he had recently been cut up by a white van and suggested in passing to a transport research group that they might make a suitable focus for study. Whatever the exact origins, “White Van Man” may have began life as the epitome of the discourteous driver, untroubled by any damage done to a vehicle which wasn’t his own, but he soon evolved, via a column in the Sun, into the principled voice of the working class.
This week, a new vehicle and driver took to the motorway of public and political discourse and left “Mondeo Man” and “White Van Man” choking on her exhaust fumes. “Lamborghini granny”, as she will no doubt be known by Monday morning, is the pensioner who, after a lifetime of saving into a pension pot with the expectation that she would have no choice but to use her £300,000 to buy an annuity that would provide an annual income until the day she died, decides instead to celebrate the financial liberty bestowed upon her in this week’s Budget to indulge in her lifelong, but long thwarted, passion for precision Italian engineering.
At the heart of “Lamborghini granny” is the question of personal choice versus government responsibility, and whether or not a 65-year-old woman should be allowed to spend every penny accrued to soften the discomforts of old age on a canary yellow supercar that can go from 0-60 in three seconds and so spend the rest of her years, when not performing handbrake turns, living on the basic state pension.
The answer, according to Steve Webb, the pensions minister, is a resounding yes. As the Liberal Democrat said on Thursday: “If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.” Chancellor George Osborne is in full agreement, having said: “People who saved their whole lives, saved for a pension, these are responsible people … it is their money. They can do what they want.”
This seismic change, the biggest alteration in pensions for 90 years, requires some digestion. Yet the Lamborghini as a political metaphor is applicable to any pensioner who decides that he or she wants lashings of jam today, rather than a spoonful a day for the rest of their lives.
We’re going to see a new brand of pensioner in the next few decades, one who, as their days are drawing to a close, thinks it makes sense to indulge their long-cherished passion for a yacht or a sports car or a year-long cruise around the world. Prior to this week’s Budget, they would have been prohibited from accessing their pension pot by the government’s “punitive” tax of 55 per cent on anyone who considers taking out more than 25 per cent of their collective savings. This has now been cut to the marginal rate.
Under the new scheme, men and women of pensionable age will have the opportunity to do with their savings as they choose. For the average person, this will not be as exciting as the newspaper headlines have this week made out, as £30,000 – currently the average pension pot in Britain – would only buy a 10 per cent share of the Lamborghini Aventador, or three years’ insurance if you were lucky enough to receive one as a gift.
Yet for those fortunate, careful and diligent enough to have built up savings of hundreds of thousands of pounds, they will have to decide the best course of action. In Australia, where a similar system is already in place, one-third of people use a chunk to pay off their home, 19 per cent buy a car, 14 per cent go on the holiday of a lifetime while 50 per cent invest the money in stocks and shares, etc. What is interesting is that only one in 25 buys an annuity, which is why there is now debate in Britain over what this will mean for those who continue – unforced by the hand of the state – to purchase an annuity. The government insists savers will receive a better deal as companies will have to compete for business, while critics say they will receive a poorer deal as companies seek to make more profits from a smaller pool.
What is certain to happen is that there will be casualties of poor financial decisions. We all underestimate how long we will live and the current expectation of, roughly, 20 years of retirement is climbing at a rate of two years per decade as life expectancy continues to grow.
Then there is the problem, recently diagnosed, that older people tend to make more financial mistakes. A study in 2011 found both younger and older people made financial mistakes and inappropriate decisions but for different reasons – the young were cognitively robust but lacked the life experience, while the elderly possessed the life experience but lacked the “fluid” cognitive ability. According to the report, the age at which mistakes were minimised was 53, as after that a fluorescent yellow Lamborghini may prove an increasingly attractive option. (A study by the journal Science found that the mental burden of poverty also reduces IQ by 13 points.)
There is little doubt that historians will look back at this Budget as a fulcrum; what we don’t know is whether it will be one that swings up to increased affluence or down to poverty.
Should the state force us to make what it believes to be the best decisions for our future? The compulsory enrolment in workplace pension schemes means the government clearly thinks that the answer is yes. (It’s also why the law demands we wear a seatbelt in a car.) But once we’ve reached a pensionable age, we’re clearly now considered old enough to decide for ourselves what is the right thing to do with our funds. We, along with our funds, have reached the age of maturity.
Yet there is one point that has not yet been considered, which is the likelihood that “Lamborghini Granny”, after years behind the wheel of a Ford Ka, is unfamiliar with the responsive controls of a sports car, spins out of control and into a brick wall. If this does happen, then technically her pension pot will have successfully carried her to life’s end, and to judge by the leather interior, in relative comfort.