LONDON (Reuters) - Chancellor George Osborne’s surprise revamp of the pensions system could help galvanize his Conservative party ahead of next year’s elections by targeting the key voting group of older Britons.
The man in charge of Britain’s $2.5 trillion economy is keen to provide some relief for voters after four years of belt-tightening, even while he continues to stress that he has no money for extra spending.
The Conservatives are struggling to make up the roughly five percentage-point lead of the opposition Labour party in opinion polls, despite a stronger-than-expected recovery of the economy over the past 12 months.
In the annual budget announced on Wednesday, Osborne stunned the pensions industry by giving savers the freedom to spend their pension pots as they choose, scrapping a requirement that they buy safe annuities on retirement.
By so doing he has opted for a reform that appeals to older voters who tend to show up for elections more consistently than younger people without having to relax his grip on spending.
Older voters have also traditionally been more inclined to support the Conservative party. But a poll this week by polling firm Yougov found 17 percent of people aged over 60 who intend to take part in the elections would vote for the anti-establishment UK Independence Party. That’s more than double the percentage for people under 40.
Riding high on discontent towards the main parties, UKIP has been taking support principally from the Conservatives.
“The Conservative Party still retains a lead among the over 60s so they are very much playing to their base with these pension and savings ideas,” said Laurence Janta-Lipinski, a research manager at Yougov.
People over 60 represent about 30 percent of the adult population in Britain.
Osborne made other changes designed to help savers, including the introduction of a new, higher-rate “pensioners bond” and more generous limits for tax-free savings accounts.
He is betting that a second year of strong economic growth and faster gains in wages will help boost the Conservatives’ standing in the polls.
But even if Britain’s economy outpaces the official forecast for growth of 2.7 percent this year, Osborne’s room for manoeuvre in the winter, when he has the chance to announce more measures in his half-yearly budget update, is likely to be limited.
Britain’s economy could soon be running out of spare capacity, and applying further stimulus in the form of tax cuts or extra spending could push it towards overheating.
“I think it’s pretty unlikely,” said Paul Johnson, director of the Institute for Fiscal Studies, a thinkthank, on the prospect of a pre-election giveaway. “They would have to completely change their view about the output gap.”
The pensions changes might be the sugar the Conservatives need to help get support from the broader electorate for their more bitter message that further tough times lie ahead.
“If you’re behind in the polls, a shock which everyone pays attention to can make people listen to the other things you say,” said Paul Whiteley, a politics professor at Essex University who specializes in elections.
Additional reporting by Ana Nicolaci da Costa; Editing by Sonya Hepinstall