A lot has been said about the potential exit of “the British” (this is shorthand presumably) from the European Union.  One of the arguments “for” what would probably be an undignified exit from the Union is that the country will regain control over its boarders, its budget and, ultimately its national identity. 

This argument has genuinely baffled Pensions News (PN); particularly the point about “national identity”.  Saying that leaving the European Union would give the country back its identity indicates that the country is going through some sort of identity crisis when, it seems to PN, it isn’t.

For some reason, certain persons (these persons shall remain nameless but they know who they are) appear to believe that an identity crisis is where one is not generally known about and particularly not well known to or in the United States of America.  PN ropes in the US of A here because most famous people and institutions seem to end up there or end up being talked about there.  The US of A is, in short, where people go to make it.

Allegedly, Australia went through an identity crisis a few years ago (seven years ago to be precise) when a film about Australia (it was called “Australia” if the proponents of identity crises want to marshal their intellectual equipment in order to understand what an alleged identity crisis looks like) appeared to be considered by Australia as an advertisement for the country.  That film would boost the country’s identity. 

PN’s view at the time was and remains as one with many of the film’s critics at the time.  Australia did not have an identity crisis in 2008, it does not now and neither does this one.  Any country able to produce Ian Thorpe, Nicole Kidman, Hugh Jackman, Russell Crowe, Clive James and Rod Laver (people who are deservedly world famous and famous as Australians) is not and was not undergoing any kind of crisis.  Put differently, it’s not an identity crisis where everyone knows that certain individuals, collections of individuals (the Australian rugby and cricket teams for instance) and institutions are known outside the country as being Australian.  After the second world war, individuals from Poland left that country to inhabit countries like this one, Australia and the United States of America.  Consider Poland; a country which had done to it what the Nazis and the Soviets did before during and after World War II.  As one famous Australian said when criticising “Australia” the movie (it was Mr Clive James); that’s an identity crisis. 

Ours (we’re moving on from Australia now) is a country which has designed a pension system which nobody really understands but everyone (well, nearly everyone), including journals as disparate as the Financial Times and the (<ahem>) Daily Mail, talks about.  This sentence seems to put pensions within the definition of a mystery and most people, but particularly most British people, like a mystery; especially when the mystery has an element of farce about it.  There are several examples of such things.  Which other country:

  • has a Millennium Dome with not much in it but finds it funny?;
  • has a (new-ish) terminal at Heathrow Airport which separates passengers from luggage on a regular and sometimes permanent basis and finds that funny too - unless one is one of the passengers?;
  • generally celebrates its own historical disasters by poking fun at them?  If it didn’t, the cult series Blackadder and particularly the series Blackadder Goes Forth would probably have been a flop.

The pension system which is peculiar to this country has been designed, tinkered with, modified, re-modified, simplified and then reformed (to quote a famous but now deceased Hollywood producer) in order “to delete the improvements”.  It is famous outside this country as being impenetrable and the sort of thing which (as PN heard an American client of his state once during a transaction) “only the Brits could have thought of”.

Famous also is the reception that changes to the pension system receives from its the citizens.  Take the apparently tiny change proposed by Mr Osborne in the budget last week; referred to in some circles as the “LISA” (who else but a British person would degrade a perfectly nice name?).  The “Lifetime ISA” has been announced as a new retirement savings vehicle for those of you (note, that’s “you” - not “us”) lucky enough to be under the age of 40. 

Although the (future) introduction of the Lifetime ISA falls short of the radical reforms which some had predicted Mr Osborne would make (some of them referred to in previous editions of PN), the new vehicle is still being seen as a significant change to how we plan for retirement in the future.  Before PN tells you what a Lifetime ISA is, PN will warn you, the reader, that Mr Osborne did not say he would not be making future radical reforms to pensions and, in particular, tax relief on pension contributions at some point in the future.  PN still expects these to come happen; just not over the next couple of weeks.

A Lifetime ISA:

(i) will be available to individuals aged between 18 and 40;

(ii) is set up in such a way that, for every £4 an individual puts into his/ her Lifetime ISA, the Government will contribution £1 (this is equivalent to applying tax relief at the basic rate; 20%);

(iii) will (or so it seems to PN) permit an individual to contribute to a Lifetime ISA and a registered pension scheme simultaneously (but see point (vii) below);

(iv) is intended to be structured so that an individual can access his / her savings as a lump sum in the event of terminal illness - irrespective of the age at which one is unfortunate enough to contract such an illness; 

(v) funds may be accessed at age 60 or else they may be used before that age for a deposit on a first home valued at £450,000 or less (subject to the individual having saved for at least 12 months in to his/ her Lifetime ISA);

(vi) funds may be accessed before age 60 but, if they are so accessed, penalties will apply.  More particularly; the individual will lose the Government bonus on the part of his/ her funds withdrawn and any interest or growth on the value of that bonus.  In addition, a 5% charge will be applied.  If accessed on these terms, a Lifetime ISA appears to PN to provide singularly poor value. 

(vii) Finally and most amusingly of all (to a British person anyway), individuals will be able to contribute up to £4,000 a year to the Lifetime ISA.  PN thinks back to the time he was aged between 18 and 40.  At no time did PN have a “spare” £4,000 a year to put anywhere – neither did his uncle who is now comparatively well off. 

Right there at point (vii), of course, is the problem for most persons and some of them may still be reading.  PN hopes so.  It is all very well to tell someone under 40 that he or she can save money in to a new savings vehicle however, if that person is (let’s say) paying off a student loan, paying to stay in rented accommodation (as he/ she does not have the money for a deposit on a property) and is simultaneously trying to pay for a car, moped or season ticket on a train, the Lifetime ISA may be one of those mysteries which nobody aged under 40 (again, PN speaks in relative terms) can afford to be interested in. 

The British possess and, generally speaking, have always possessed an ability not to take themselves too seriously.  It is part of the national identity; something which will be there irrespective as to whether future participation in the European Union is as a partner or a spectator.  The Lifetime ISA may become another feature of the nation’s identity.  It may even serve a dual purpose by being another feature of the national identity which we and others laugh at.  We can be reasonably sure that the Germans and French have not invented a Lifetime ISA (and then called it a “LISA”) and, if they had, they probably would not find it amusing. 

Happy Easter. 

Until next time……