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As the old actuarial joke says, the English actuary will calculate on average when we are going to die but the Sicilian actuary will give us the time, date and place. The problem for most of us is of course that so few of us know exactly when we will die and, unless we are very rich, whether our savings will run out before we do. This is why the emergence of specialised gambling contracts, known as annuities, 300 years ago was so useful for most people. Rich people know they will have enough to live on whatever happens; poor people just have to get by; but the middle classes sweat over whether they and their family have enough to live on until they expire.

And the chances of funds running out too soon are higher than they have been. There is a double whammy: first, life expectancy is increasing so fast that every day that goes by we can expect to live another six hours. And secondly, the investments we put our savings in nowadays give an unpredictable and fluctuating level of income and security. Most recently quantitative easing has pushed interest levels to an unprecedented low, so that annuity rates offered by the counterparties to the gambling contract, the insurer, are lower than had ever seemed possible.

So no wonder people have been complaining about annuities. And it's understandable that a government facing elections looks to a small bout of populism to garner a vote or two — and to raise some cash to benefit the Treasury as well. The announcement in the Budget that the penal taxation on taking money out of a pension pot is being reduced to simple high taxation might therefore look attractive — but common sense and bitter experience suggest there could be tears by teatime.

Wealthy people hate annuities; they see the pension pot as just that, a pot of money, rather than a stream of future income. They think the insurers rob them. And they think they can invest better themselves, although the real reason that annuities seem poor value is that regulators and the government insists insurers invest in government securities at a time of quantitative easing, i.e. they are forced to invest in awful investments.

But there are advantages to annuities. They allow us to share risk: the actuaries know, on average, how long a group of people will live, which means we as individuals do not need to save in case we live to 120, which would be expensive and wasteful. They are cheap, popular myths to the contrary, since despite all their faults insurers can invest better than an individual can. And, incidentally, they give immunity from bankruptcy.

Some things, like national defence, are best done collectively, and one of those is annuitisation and pension provision. The removal of the requirement, after 70 years of consensus, that if you save money for your old age you will enjoy fiscal neutrality on that money is based on a false premise, i.e. that pensions are the same as savings. It is supported by an unrelated issue, namely an unthinking dislike of public sector pensions (what will we do with the underpaid nurses who can't afford to make their own provision for retirement?). The removal of the annuity requirement militates against two accepted elements of public policy: first, the fiscal deal that there will be tax neutrality on pension arrangements in exchange for protecting ourselves against old age; and second, the nudge principle, that the state will direct us into a sensible decision by default, one we can undo if we insist.

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