Pensions and the deficit September 27, 2010 at 1:28 pm

I didn’t catch this, but Jonathan Hopkin did. Julie Finch has the original suggestion in the Observer. Hopkin comments on her article

high earners in Britain receive enormous tax relief on their private pensions, estimated by Richard Murphy to be worth £38 billion per year, about a quarter of the deficit. [Julie] suggests that ‘we should maintain the subsidy, but only if the recipients divert at least a proportion of their funds into infrastructure investments and local authority bonds’.

Sounds good to me. In fact, why stop at that? The subsidy could be tied to the purchase of Treasury bonds at rates close to the rate of inflation. After all, the deficit is at least in part the consequence of saving the value of private investments through state intervention. Financing government borrowing at a reasonable rate seems a fair contribution from those who have benefited so much. This would remove fears of a spike in bond prices, allowing us to plan for an orderly reduction of the deficit over a longer period of time.

Absolutely. This would also have the side effect of reducing asset price bubbles and the inevitable clamour when pensioners lose money on (highly risky) equity investments. How about a requirement to invest a minimum of half of your pension in long-dated linkers?

One Response to “Pensions and the deficit”

  1. I don’t know why governments can’t do simple solution stuff. The ECB, for example, doesn’t seem to want to consider removing the 500 euro note from circulation.

    Imagine if they gave holders one month to turn them in, giving those who couldn’t justify their existence in their hands an amnesty if they bought government debt of the country that issued them. There’s about 50 billion euros worth that have serial numbers beginning with ‘V’, which would have bailed Spain out of quite a bit of trouble. Not to mention what a huge repatriation from Colombia would have done for the CA deficit.