The Chancellor says now the shops are open, we should “spend, spend, spend” but, given the current economic situation, there is much more to consider before heading out to indulge in some retail therapy, particularly if you’re in, or nearing, retirement.
Take the case of Joshua, who retired three years ago with a pension pot of £150,000. His financial adviser says there is a great danger of him outliving his pension pot if he withdraws more than 4% of that amount increased by inflation in any year. With his state pension, his total income is £15,000 a year. How much scope does he have to go on a ‘spending spree’?
The Chancellor says “spend, spend, spend” but Mary, aged 63, has to wait another four years before she’ll receive her State pension. After being furloughed initially, she is now being made redundant and worries where her next job is coming from.
While she could benefit from others spending to improve her employment prospects, she herself needs to have more assurance about her future before she spends more than is necessary to survive.
The Chancellor says “spend, spend, spend”. Justin retired two years ago with a defined benefit pension of £12,000 a year. His state pension will not be paid to him for another two years but then his defined benefit pension will reduce by £1,000 a year. Until his state pension age, he needs to be frugal with his spending.
The reason why the Chancellor wants us to “spend, spend, spend” is because he wants the economy to bounce back after what has been three months in the doldrums. Much as it was our civic duty to stay at home, is it our civic duty to spend?
If we spend there is work for those who serve us, be it in shops, restaurants and public houses. Also, work will be provided for those who supply goods and services to those outlets. Those who are employed receive wages from which they can spend, creating a virtuous circle.
This virtuous circle will lead to the payment of more taxes to help the government balance its books. Businesses will grow creating yet more work.
After World War One, the French Government needed to rebuild the French population. In 1920 it introduced the Medaille de Famille Francaise. A woman who mothered four or five children received a bronze medal, six or seven a silver medal, eight or more a gold medal.
If the government is encouraging us to “spend, spend, spend” as it is our civic duty, should they award medals to those who spend the most? I am not sure those charities in the debt counselling sector, would approve and government’s should not be encouraging people to take on more debt than they can afford.
Let us go back to Joshua, Mary and Justin. They are all homeowners, in fact, over 70% of pensioners own their own home. The equity in homes owned by pensioners is estimated to be over £1.1trn pounds.
Releasing some of this money into the economy would give the boost the Chancellor is looking for. Home improvements such as extensions to provide extra bedrooms or bathrooms; modifications to improve accessibility and facilities for ageing occupants; installing more efficient heating systems; replacing windows; and landscaping gardens will all help the economy in creating work. They are also spending projects that many pensioners sitting on housing wealth should be considering.
There are those that argue for last-time buyers to be exempt from stamp duty if they move to a new house and the recent announcement from the Chancellor around a stamp duty holiday will help this if they’re buying below £500k up until the end of next March.
Their argument being that if the retired moved to smaller homes they will free up larger homes for younger people. That said, I am not convinced that this will be particularly popular as many older people want to remain in their current home.
However, a campaign to get those who are retired to improve their homes for their own and the country’s benefit should help give the economy a kick-start that is required. They have the wealth to spend, they just need the nudge to spend it and the help to release equity from their homes.
I am not calling for medals to be awarded to those who use equity release or other later life lending for property improvements, but the government could do far worse than promote these products as a way to boost the economy.
Bob Champion is chairman of the Air Later Life Academy