I rise to speak on behalf of Plaid Cymru and in support of amendment (a), which stands in my name, to Labour’s new clause 2. I agree with much of that new clause, but I wish to add that the Government should bring forward a report on the impact of the changes introduced by the Bill specifically on the housing market and introduce measures to rectify any problems, should it become apparent that there are negative consequences. I sincerely hope that my concerns are entirely unfounded.
Although we welcome the Government’s desire to reform the private pensions system, we in Plaid Cymru have concerns about the consequences of behavioural changes in the pensions industry, particularly in relation to individual pensioners taking large draw-downs of money. We are not against pension savers being able to access their pension pots as a lump sum. If that is how people wish to access their money, it is up to them to do as they see fit. Given the rates of return achieved these days, it is not surprising that many people will wish to take that route.
Our concern is that the effect might not be quite what the Government intend. Aside from consumer protection issues and stopping people being targeted by sharks and cowboys seeking to exploit those who are newly able to access comparatively large amounts of money, attention needs to be given to the longer-term possibility that those who draw down large amounts and whose subsequent investments fail, for whatever reason, will be left with little or no money on which to see out their final years, despite having contributed to a pension scheme for most of their lives, and that they will then become a burden on the public purse. It is fair enough to say that the buyer should beware, but we are not talking about purchasing a new television; a wrong decision in this case might have grave, long-term effects on people’s basic incomes.
As has already been mentioned, in Australia, where the Government have introduced changes similar to those intended here, many people took large draw-downs and invested the money in buy-to-let properties. As the
TUC has noted, much evidence indicates that the same will happen here, despite Ministers’ talk of people making home improvements, buying new kitchens or going out and buying cars and other consumer goods that will boost the productive economy.
Research by the Australian investment management firm Challenger has found that one third of savers used their pension cash to buy a home, pay off an outstanding mortgage or make home improvements; one in five splashed out on a new car; and one in seven spent at least some of their pension on a holiday. The evidence from Australia is that, when given the choice, only one in 25 Australians now buy an annuity. In the US, another country where annuities are not mandatory, most people take their pension money as cash, rather than buying an annuity. Indeed, a buy-to-let property might appear to be one of the better options for many people, rather than keeping their money in their pension scheme or making other, more conservative investments.
Some large accountancy firms, such as PricewaterhouseCoopers, have said that the changes to the annuities system will be a net positive for the Treasury. They perhaps foresee the revenue raised through stamp duty and other associated taxes. But it is not the Treasury’s coffers that will suffer, at least not in the short term. It is the potential bubble in house prices that concerns me, particularly at a local level, and the potentially growing number of people who would then be unable to buy their own home, the strengthening of the historical over-reliance of the British economy on a buoyant housing market, and the potential effects on investors’ incomes should, or rather when, the bubble bursts.
I need hardly remind the House of the dangers of an over-inflated property market, of which buy-to-let is a significant factor, and indeed one of the significant causes of the financial crash in 2008. Even prior to the crash, in August 2007, Oxford Economics noted that buy to let
“is undoubtedly contributing to the overvaluation of housing.”
Were I cynical, I might even characterise inflation of the housing market as some sort of giant Ponzi scheme, helping to keep the economy afloat while doing little to contribute to productive capital, the epitome of the rentier society—if I was cynical.
Of more significance to my constituents, and to people throughout Wales and the more picturesque areas of the UK, is the potential that those taking large draw-downs would decide to buy holiday homes. I need not rehearse in any detail the arguments about the problems associated with an over-preponderance of holiday homes. Hon. Members who represent constituencies where that is a problem will be only too aware of the negative effects. Anyone who really wants to know about it might read my maiden speech from 2001, which addressed housing matters and this problem, in particular. To put it briefly, having too many holiday homes in an area has a negative, deadweight effect on the local economy. Local people, especially young people, are unable to afford homes because of price inflation and are forced to leave. In my constituency, and in much of rural Wales, there is the added dimension of the damaging effect that has on the Welsh language. We have been largely spared some of those effects over the years of economic difficulty, but now, if the Chancellor is to be believed, we are moving towards a new golden age of plenty, possibly financed in part by pension lump sums, with a consequent revival of these risks.
I do not wish to over-egg the pudding, but I draw the Minister’s attention to the previous Labour Government’s proposal to allow tax relief on self-invested pension plans for any investment, including old master paintings, fine wines, and, indeed, holiday homes. I argued at the time that this might allow potential holiday home investors to benefit from up to 40% tax relief on such an investment, and price local people out of the market. I well remember two initially slightly frosty, and then rather stormy, meetings with the then Treasury Minister, Ruth Kelly. I was aided in the first by Simon Thomas, the then MP for Ceredigion, and joined in the second by Andrew George. Ruth Kelly assured us that we need not bother our heads with such concerns because any tax advantage would be mopped up by other means. A few short weeks before the provision was to be brought in, it was withdrawn.
I make no claims about that, but I would not wish the current Minister to suffer such a post-legislative fate this time. That is the reason for this probing amendment calling for an analysis of the effects on the housing market. I look forward to the Minister’s response.