Who pays the piper etc.

Policy Exchange have 'done a Demos'.

Their new report rides the old Help to Save - Defusing the pensions time bomb bandwagon.

This meme/myth is based on people's complete and utter lack of understanding of the fundamental difference between businesses investing and households saving:

- Business investment is A Good Thing as it increases productive capacity, and the best source of funds is current, ongoing income. You get a match between "what consumers want" and 'what producers provide".

- Household saving is on balance A Good Thing, mainly because of the benefit of spreading your consumption evenly over a lifetime of fluctuating income, i.e. some households dis-save (borrow) and others save and it all evens out. Household saving does not in and of itself increase productive capacity and might even reduce it. The City wants to brainwash you into spending less on goods and services and spending more money on shares, i.e. tomorrow's shareholders give it to today's shareholders. Surely it is better for businesses to earn money from customers spending money than for today's shareholders to earn money from selling shares in companies with lower earnings?

They also gloss over the fact that there is a limited amount of interest or dividend yielding assets for people to invest in, so it is physically impossible for all pensioners to end up with at least £9,000 in private pension income.

So what it boils down is the usual "we want the government to take a large chunk of your salaries and give it to the boys in the City, who will use it to chase up share prices and push down bond yields.

"After having taken a massive cut for themselves, the net benefit to you poor deluded savers overall will actually be negative.

"And there's a bonus! The more of your salary is taken away now, the longer it will take you to pay off your mortgage! Win-win!"

Let's just see if there are any clues as to who is behind it, shall we?

About the Author

James Barty is the Senior Consultant, Financial Policy for Policy Exchange. Prior to joining Policy Exchange he worked in the financial sector for more than 20 years, including 17 years at an investment bank and four years at a hedge fund.

Acknowledgements

We would like to thank all of the people who have taken the time to talk to us about this vital issue. The feedback we have received has been invaluable and we have tried to incorporate it into the report.

We would particularly like to thank Alan Brown and the Global Strategic Solutions team at Schroders who kindly provided a considerable amount of input and help to us in the research and writing of this report.