The Student Room Group

Shock and awe- interest rates and pension reform; is there a different way?

At the age of 67, the vast majority of people will be able to claim the 'state pension', although, is it timeto reform the system in order to incentive a true savings culture within the UK?

Based on an individual working from between the ages of 21 to 67, or 46 years, the average size of a pension pot for a private sector worker on £25,000.00 per year with a joint 10% pension contribution would amount to around £115,000 (excluding interest).

On the basis that the same person was to tax 25% tax-free, or £28,750.00, that would leave £86,250.00, equal to £5,750.00 per year for 15 years, or a joint state and private pension of around £13,000.00 per year.

Therefore, its time for real change.

Reforming the savings culture:

1. Remove control of monetary policy from the Bank of England and immediately increase interest base rates from 5% to 25.5%.

2. In order to prevent rapid deflation of the economy and prevent unaffordable mortgage payments, over a 10-year period freeze rates at an amount equal to 5% maximum and fund a £165.7 billion per year fund to clear the mortgages of all UK individuals - this would prevent repossessions

3. Liberalise access to pension funds by removing the punitive tax on withdrawals before the age of 55.

4. Introduce a 'fast track purchase scheme' for first-time buyers (capped at £450,000.00), whereby the government will match the interest payments paid to customers who save within the scheme at the end of a 5-year period, meaning if an individual saves £600.00 per month for a house, at an interest rate of 25.5%, the total deposits from the customer over 5 years will equal just under £60,000.00 and the interest would amount to just under £53,000.00 (or £106,000 with government interest rate matching), therefore meaning a total of £166,000.00 saved within a 5 year period to purchase a home.

5. Seek to phase out the 'state pension' for all those aged 52 and under (15 years till state pension age) - issue 25-year bonds fixed at 25.5%, therefore meaning if an individual starts working at the age of 21 and saves £250 a month into a pension scheme (10% of joint £25,000.00 a year earnings) they would be able to retire at the age of 46 with nearly £24 million, thus additionally generating more capital gains tax revenue.

6. Seek to avoid unaffordable increases in government borrowing by reducing the size of the state - based on interest rates increasing to 25.5%, government interest payments would total nearly £500 billion a year, therefore increasing the size of the UK deficit from £134 billion ,or 5% of GDP to nearly £634 billion, or 23% of GDP - this would be unaffordable in the long term.

7. Based on the average individual saving £100.00 per month (£1200.00 a year) for 5 years at a rate of 25.5%, their total investment would be worth nearly £18,000.00 due to the almost £8,000.00 worth of interest gained.

8. On the assumption that the majority of people will be better off after 5 years, seek to reduce government spending by 50% from £1.2 trillion to £600 billion a year in order to reduce the size of the UK deficit back to around 3% of GDP.

9. Seek to encourage a savings culture within the UK, given the average mortgage in £600.00 a month, someone who saves £600.00 a month for 10 years at a 25.5% rate of interest would have a total investment worth nearly £702,000.00 (£245,000.00 deposits & £457,000 in interest).

10. Seek to encourage economic growth within the economy and make the UK the true investment capital of the world - a millionaire who has a net worth of £50,000,000.00 in a UK bank account would generate a yearly interest payment of £14 million a year.

11. Seek to reduce government spending on all areas apart from defence, the home office and the foreign office - reducing government spending from the current £1.2 trillion to around £100 billion a year by the end of the 10th year.

12. Seek to reduce the tax burden by abolishing corporation tax, capital gains tax, council tax, all duties on goods and reducing VAT to 5% - these policies would cost around £200 billion, although by year 10, government spending would be at £100 billion a year, therefore meaning with the interest repayments of £500 billion a year, debt to GDP would remain at the 3% level, if not a surplus on day to day spending.
Jesus Christ.

Quick Reply