Lansons Conversations

No nest egg for the masses

Two early decisions by the new government will cause consternation in some places and at least disappointment in others.  Rather surprisingly, the Child Trust Fund bites the dust from the end of the year.  This seems to be a short term public spending cut and a contribution to cutting the budget deficit.  However, no rationale beyond that has been given.  CTFs were meant to get people into the savings habit which the last government and many observers deemed a good thing.  Whether it would have worked over the long run we shall never know.  But what we also don’t know is what is the new government’s attitude to households behaving prudently and if they are in favour of it how ill they promote it? The NEST scheme of personal accounts for retirement savings is also under review, as is the contract awarded to Tata to administer it.  This has a different feel to it.  For a start, NEST has been told to carry on with its preparations for 2012 and the review is being held internally within the DWP.  The Tories always promised a short sharp review if they came to power in 2010.  It seems their main concern is the amount of “deadweight” saving that will go on amongst lower but still eligible earners, who will simply disqualify themselves from means tested benefits.  It is hard to see how DWP officials will open up this can of worms.  They are the architects of the current arrangements.  It seems unlikely that the Lib-Dem plan to abolish means testing by setting the basic state pension at a rate to lift people out of benefits will be affordable in this decade or the next.  The simplest solution would appear to be to abandon the NI Lower Earnings Limit as the start point for eligibility.  The trouble with this is that it would make NEST look increasingly like competition to the private sector.  Can anyone remind me why we should be doing this? Richard