Profits for pensioners
NICHOLAS DAVENPORT
Being in the life business myself I can hardly wait for the publication of Mr Richard Cross- man's White Paper on national superannuation.
Blast off is still some weeks ahead. A prelimin- ary was the publication last week of the third survey by the Government Actuary on occupa- tional pension schemes. Mr Crossman has al- ready relieved a lot of anxiety in the life offices by telling the House that there is no question of the new state pension scheme replacing or upsetting the private occupational schemes: it will allow plenty of scope for their further de- velopment. The Government's aim is to work in partnership with the life offices, which will be the most convincing action it has yet taken to show that it really believes in working a mixed economy. I think the life offices had been thoroughly scared by what happened in Sweden where the new government-funded pension plan, retiring workers at about two thirds their previous earnings, virtually killed all the private occupational pension schemes.
The Government Actuary's new survey re- veals that at the end of 1967 there were about 65,000 active pension schemes (excluding indi- vidual 'top hat' commitments) compared with about 37,500 in 1956. Membership had in- creased from 8 million to over 12 million in this period. This means that half of all employed people—in fact, two thirds of all employed men —are now members of private occupational pension schemes. (The 12 million may be divi- ded as to two thirds in private industry and as to one third in the public sector.) The Govern- ment Actuary believes that the rate of private pension growth will slow down over the next few years, not necessarily because of the attrac- tions of the new state scheme but mainly because industrial takeovers and mergers bring about a rationalisation of separate schemes.
The rationalisation of private pension schemes is urgently required even if There is no merger to activate it. Most, but not all, assess pensions on the final year's salary. Some, but not all, augment pensions slightly to account for the rise in the cost of living. There is a host of minor differences in regard to death benefits and widows' pensions. Greater uni- formity is a crying need.
It emerges from the Government Actuary's report that over 40 per cent of all members of the private occupational schemes have contrac- ted out of the national insurance graduated scheme. We are all agog to know how Mr Cross- man will deal with contracting out in his new national plan. And will he insist on minimum credits being given if the worker desires to with- draw from one private scheme and go to an- other one or rely on the improved state scheme? One of the bad features of the private schemes is that there is no uniform treatment for with- drawals. Three quarters of them allow no credit to be given for employers' contributions. Bear in mind that in 35 per cent of the private schemes the members are not required to make any contribution. It seems odd that no pay- ment need be made on withdrawal in such cases, however long the period of membership. Is it not possible for Mr Crossman to get some. agreement with the life offices on this vexed question?
Partnership between the state and the private occupational pension schemes is imperative be- cause without the latter the national pension provisions would make little or no contribution to national savings. We all know that without savings we cannot finance the investment re- quired for national growth except on an infla- tionary basis. We should also know that it is only the surplus of total income over total ex- penditure in the private pension schemes which contributes to net national savings. The surplus arises because the private schemes are funded and are expanding. No surplus would arise if they were contracting instead of expanding. And no surplus arises in the state scheme be- cause it is not funded but pay-as-you-go. I sus- pect, however, that there will be some surplus in the early stages when contributions go up immediately and pay-outs follow later. The Government Actuary gives the exact amount of net saving contributed by the private occupa- tional schemes in 1967: Contributions: £ million from members .. .. £345
from employers .. £920 £1,265 Net interest earnings .. .. £480 Expenditures: on pensions .. .. £570 on other benefits and expenses £365 £935 It will be seen that in 1967 the private occupa-
tional pension schemes contributed £810 mil- lion to the national savings. This was rather more than one third of total personal savings. Moreover, this contribution was channelled dir- ectly through the Stock Exchange machinery— debenture and equity issues etc—into invest- ment by public bodies and private enterprise. The slogan of the pension movement—national and private—should be 'without savings, no in- vestment: without investment, no growth.'
Now to attract more savings through the medium of pension contributions it -will be necessary to make the pension benefits more enticing. This the life offices are doing by allow- ing pensioners as well as life policies to partici- paK'fo some extent in the capital growth of the funds. It is tantamount to offering a pensions policy 'with profits.' There is a quiet revolution going on in the accounting practices of the life offices. They are no longer confining their de- clared surpluses to the exact amount of the trading profits worked out on the conventional actuarial basis; they are enlarging them by in- cluding some allowance for the capital apprecia- tion of their security portfolios. In other words they are allowing the policy holders to share to some extent in the equity share boom. (Inci- dentally, shareholders in proprietary companies will also benefit from this accounting revolu- tion: hence the current market rise in insurance share.) Seeing that some life offices have inves- ted up to 60 per cent of their funds in equity shares the extra bonuses could be considerable. With the larger surpluses to be declared the life offices may be able to tell their pensioners that when the pension is awarded it will be 'esca- lated' by the amount of the fall in the value of money. Saving for a retirement pension could then be advertised as an inflation hedge. What more do you want of this welfare state?
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