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25 September 2012


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No doubt the obsession with house prices is because there is so much fiat money tied up in them that any serious fall in prices will lead to more mortgage defaults and maybe a bank or two falling over. Thus, better to keep up the pretence by depressing interest rates and printing money. Kicking the can down the road.

Interesting programme on the BBC last night about F. A. Hayek (Masters of Money, BBC2). In essence central bank meddling causes both the boom and the following bust. Any effort to control either just makes it worse. Rules - yes. Manipulation - No. With such an approach things would now be well on the mend and houses would be affordable - sensibly priced even.

Time to dust of my old copy of "The Road to Serfdom". Pity it's not required reading at school.


Total disconnection from reality.
Take a lump sum at retirement, fine, but let's remember it significanly reduces the pension paid. If retirement is as lengthy as we hope, it's a poor deal.
Pensioners do have some questionable benefits courtesy of Gordon's drive for universal welfare dependency, but annuities are dire.
Only those for whom retirement income is heavily taxed are likely to find this worth thinking about, and they've probably already helped their by now middle aged offspring.


Clegg doesn't understand pensions. He will enjoy two of the most generous pensions schemes in the World - as an MP/Minister and as an MEP. The combined value of those (i.e. the sum needed to be invested to produce an income equivalent to his guaranteed, index-linked pensions) will be well over this threshold of £1m for 'wealth' but won't count. He will also be taxed on each as if they were the only income. This is because of a recent EU Court ruling that EU pensions cannot be amalgamated with home State pensions for calculating the overall tax. He's either stupid or a total hypocrite.

Grumpy Oldman

Money probably does not flow from the older generation to the younger generation in Britain- but this is not the way to do it

Tony Freeman

Nothing wrong with this suggestion at all. Indeed, to allow a parent/grandparent to use part of their pension fund as an investment (loan) to their offspring to assist them to get on the property ladder is eminently sensible. Why on earth would you object to money sat in a pension fund earning a pittance with current interest rates, not being used for this purpose? Presently the rules don't allow it and presumably all Clegg is suggesting is to relax the rules in these circumstances to allow it. I'm not a Clegg fan, but on this issue his suggestion is a good one. I suspect you have misunderstood his point and are ignorant of existing private pension rules.


I thought I was the only one who thought this a bad idea! Mr Clegg has barely had a proper job which is probably why he fits in with the rest of the cabinet. The only thing worse than the coalition government is the prospect of the Labour one which will follow it.


Any initiative that allows those who couldn't otherwise purchase a property to do so helps prop up prices and discriminates against those without access. So called affordable housing will only result from a decline in market prices or a substantial rise in incomes. If the average first time buyer can't afford to purchase the average first time property the market is overvalued - period.

Claudz from 2012 Individual tax return

Pension is already insufficient and now this. Makes you wonder what Clegg will suggest next.


It isn't just politicians who are obsessed with houses and their cost-it is the UK population.

In my view this is because they are a considerably better investment than the vehicles offered by "the City"-which takes its fees whether the performance is good or bad. There is no surer route to personal wealth than managing other peoples money.

In the 80s it was quite obvious to me that most endowment policie could not possibly deliver what was promised-a classic case of mis-selling. The same has happened with pensions which don't deliver (and are subject to the vagaries of political manipulation). The same will happen with the new wheeze due to come in on 1st October. It is effectively just a taxpayer subsidy to the City.

Houses have the advantage that they don't evaporate as financial instruments can-and everyone needs to live in one. So naturally politicians do obsess about house prices-they are the commodity most important to the voter.

Sorry to be so negative about what is, after all, your profession but a bit of payment by results (as recommended by the City to others) is surely in order. I suspect few would be left standing.

Chris Smith

Spot on Terry! And I say that, as you know, as a card carrying member! I am down here in Brighton and the only thing I would say is that bonkers stuff is said as mob pleasers at these sort of events which are quickly shelved after everyone lands back on Planet Earth. Plug: I am on World at One today (26th) talking about next couple of years of Coalition....although I did mention international bond yields and failed to recommend a storming of the platform by bearded activists so I might be bumped off the schedule! Keep going Terry. Best Chris

Terry Smith

Chris Smith: Nice to hear from you although your comment seems to end in mid sentence. Nick Clegg may have been playing to the audience with his comments but I suppose I had hoped that he might realise that the gravity of the situation requires something a bit more substantial than that. I got your post too late to catch the World at One but will try to listen to you on the iPlayer.

MickC: You are of course right that the UK population is obsessed and that the majority of investment products fail to deliver. I am on the record on both points in agreement with you. But we need to break the obsession with house prices and the only way to do that is to allow prices to decline so that property becomes viewed as a place to live not an investment.

CliveWorlock: You hit the nail on the head in my view.

Tony Freeman: I assure you that I am not ignorant of current pension rules. To repeat, the pension provision in the non state sector in the UK is one of the worst in the OECD. To allow people to take part of that inadequate pension provision and give it to their children or grandchildren (I know you said ’loan’ but it flies in the face of all the evidence of human nature and family behaviour to suggest that such a loan would be serviced let alone repaid) is sheer madness. So is trying to cure a problem of the lack of affordable housing by diverting funds from a new source into buying houses. As for your pension fund earning a pittance at current interest rates, why would you have it invested in a way which earns current interest rates?

Chris Smith

I was at a meeting with Steve Webb (pensions minister) on Wednesday and any mention of this policy was notable by it's absence. My suspicion is that, like the idea to carpet the suburbs with conservatories thereby ramping neighbourly disputes up to previously unheard of levels, it will be consigned to the "vote losing" bin.

My media tart moment is here. Any mention of economic policy appears to have been left out and yet comment on Cleggy problems are left in - funny old game. https://dl.dropbox.com/u/89064687/09-26_12-59-45_BBC%20R4%20FM_The%20World%20at%20One.mp3

Tony Freeman

Why invest in cash? You're right, crazy I know, but at the moment cash funds notwithstanding the pittance of available interest rates are fairing better even after inflation than managed funds (after charges). The reduction of fund values in many private pension schemes in past years is a scandal. How many funds for example are worth more now than they were a few years ago? Not many. And indeed how many are materially less? Too many. Buying a pension fund has proved to be a lottery with losers greater then winners which I think was partly behind your point.
Those lucky enough (or wise enough) to have their own SIPPS on the other hand can if fact decide for themselves, subject to pension rules; and some have elected to go liquid for the time being until the market calms down and gets a grip. And who could blame them?
Freely available money did indeed fuel house inflation, of course, but the opposite is not necessarily true when negative equity locks people into houses they cannot afford to sell. Prices particularly for the first time buyer do not necessarily fall with your reasoning. I see your logic but I'm not convinced in practice it holds true.
Where we do agree completely is your observation that houses are too readily considered investments rather than homes. Spot on. Perhaps the South East has disproportionately led the way? But I've always thought the same as you on that particular point.
But private pension funds and annuity rules are so misunderstood. Present day annuities can be virtually matched by long term fixed interest rates without ANY depletion of capital so how come annuity providers are effectively pocketing the capital and getting away with it? Thus, a loan given to children or grandchildren, even if it was not repaid (and that is, in my view, by no means as certain as you seem to be suggesting) is not weakening fund capital at all (subject of course to sensible and proportionate levels of funding) as pension fund pots are never actually repaid in full in life or in death anyway. Either the tax man grabs over half of the fund or the annuity provider rips it off instead.
So that leaves your point of artificially inflating house prices by making these funds available; but as I've said, at a time when banks are woefully under lending, loans from parents or/grandparents on a macro level I doubt will make up the difference, but on a micro level it will help their children and if not repaid as you argue is a given, it will merely deprive the annuity provider of their ill gotten gains. But then that is perhaps the subject of a potential blog for you, the scandal of annuities?
Best wishes.

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