Knock, knock! Who's there? Adair! Adair who? Adair say they'll fudge it, as usual
Adair Turner, meet Frank Field. Seven years ago, when New Labour was new, Tony Blair told him to think the unthinkable: about pensions, that is. He duly thought it and was told that it was unthinkable, and it got him the sack — so let that be a warning. Not that Mr Turner needs one. He was once McKinsey's star pupil, and then became the CBI's cerebral director-general, but nowadays he has time on his hands, so when pensions began to work their way up the Prime Minister's worry-list, he was just the man to ask for his proposals for extracting quarts from a pint pot. Some of them appear this week in his commission's interim report, but there will be no final version until after the election, and thus no need for ministers to take decisions until later, and by then it may be someone else's worry. This is how politicians like to think. (Mr Field was and is an exception.) They work within the limits of what is politically possible until something comes along and shifts the boundaries. Markets can do that. If they helped to give us the idea that pensions came up from a bottomless well, they have certainly helped to dispense with it, for Mr Turner tells us that the money in this well is £57 billion short of what is needed. Time now for some unthinkable ideas.
The priceless illusion
First unthinkable idea: It costs money to pay people not to work. For two happy decades we forgot about this. The pension funds seemed to top themselves up automatically. They tucked their money away in the stock market and watched the valuations soar. Companies stopped paying contributions. Directors encouraged one another to retire early on full pensions. It was all too tempting for an ambitious new Chancellor, who thought that he could take £5 billion out of the pension pot, year after year, without anybody noticing. He was wrong about that. By now the billions he has taken must account for most of the deficit that Mr Turner identifies — and now the funds have lost the knack of topping themselves up. The life offices, with Equitable the classic example, found that they had been distributing money that they could no longer expect to replace. With hindsight, that wonderful aid to investment, we can see that the happy decades were untypical, that the markets overreached themselves, and that the returns they are likely to show us from now on will be altogether more modest. At the same time, the demographics are changing, and more of us will expect to be paid to not work and to go on not working. That, of course, will cost more.
Post-dated taxes
rr his idea has an unthinkable variant: An unfunded pension is a post-dated cheque. MPs' and ministers' pensions are classic examples. They would cost fortunes to fund, and they will cost future taxpayers fortunes when they come to be paid. Public sector employers are remarkably openhanded in writing cheques like these to members of their staff who wish to retire early. After all, they may reason, if directors could do it, why can't they? Demographic changes will continue to inflate the cost of providing all these pensions, and so will the expansion of the public sector. They will be a dead weight on the shoulders of taxpayers whose own pensions may be far less generous, and at some point will become a political embarrassment. The government of the day will then try to get out of them or round them. Governments do this to their pensions promises.
Fraudulent misnomer
Their record should serve as a warning: Forced saving schemes are a Pm, of taxation. To see the principle at work, we need look no further than that fraudulent misnomer, National Insurance, the tax that dare not speak its name. Alan Johnson, who became pensions minister when his ineffectual predecessor retired to the back benches, says that he likes the idea of compulsory pension contributions. He might have liked the idea of post-war credits. l'his wartime expedient meant that some wages were frozen. It then suited governments to keep them frozen in peacetime, and they were only thawed out when the great post-war inflation had begun to chip away their value. Something would be wrong with an economy where savings depended on compulsion. We take no persuasion to put our money aside when it is worth our while. That is how we buy our houses.
Save and own
The idea that follows is so unthinkable as to be liberating: Forget pensions, think about savings. What makes the difference is ownership. We may choose to save money, or not to spend it, for all sorts of reasons, and providing for our old age is only one of them. Only in the most vague and indirect way could people in conventional pension schemes be said to be the owners. In effect, they have to depend on the luck of the draw and the fortunes of long-past employers. As owners, they might have been more alert and more vigilant. Just now our savings are unbalanced, with a disproportionate amount of our personal wealth tied up in bricks and mortar, which yield us no income. Over a generation, inheritance will put the balance right — that is, if future chancellors will let it. This one has preferred to tip the balance and to create a dependency culture, for savings represent choice and independence, and we might choose to believe that we know better than he does. His cherished and complicated scheme of pension credits could have been designed as a disincentive to save. As for his raid on the pension funds, who can say where the money has gone? There is not so much as a moist patch on the wall of his choice.
Think about it
The last of these unthinkable ideas must by now be becoming familiar — thinkable, even: Do not bet your old age on the government. Not on this one, obviously, but not on any other, either. Governments are the pension providers who can always rewrite the rules to suit themselves, without penalty, and it shows in their performance. Indeed, if they would get out of the pension business and stay out, we would all be better off. When he works his way round to his recommendations, Adair Turner might like to suggest this — or, at least, to think about it.
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