Pension reforms to cost UK £5 billion
14th October 2016
From an article on 13th October 2016
The pension reforms introduced by former chancellor George Osborne will cost an estimated £5 billion to the UK economy and contribute to rising house prices, according to the Office of Budget Responsibility (OBR).
The report looked at the estimated economic impact of a range of pensions and saving measures, including the pension flexibility, annual and lifetime allowance, secondary market for annuities, saving allowances and the Help-to-Buy and Lifetime ISAs.
The OBR estimates that:
- Net gains on public finances will peak at £2.3 billion in 2018/19, before turning negative in 2021/22
- Net costs will continue to rise, reaching an estimated £5 billion in 2034/35.
Represented as a share of GDP this equates to 0.1%. If this trend continues at a steady pace, the package of reforms could represent a cost of 3.7% of GDP to public sector net debt in 50 years.
The report also explores whether this package of measures will affect house prices. While pension flexibility may divert more money form pensions into property, if the supply of houses remained relatively fixed, then this could contribute to price rises.
Figures from the Office for National Statistics show that from 2012-14, the household wealth of UK was distributed across private pensions (£4.5 trillion), property assets (£3.9 billion), financial assets (£1.6 trillion) and other physical assets (£1.2 trillion).
Our comments on this article
“It is startling to hear that the pension reforms will cost tax payers an estimated £5 billion, especially as the UK’s economy is only just in its early recovery stage. It will be quite embarrassing for the Government to find that the new money saving schemes will backfire, and result in unforeseen sudden price increases to UK property – this is even more concerning for the many who are already struggling to get onto the property ladder.
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