Scooping S4O billion out of the pool is that clever of Gordon? Not very
Inever understood why Robert Maxwell bothered to steal from his pension funds. There were so many perfectly legal ways to extract money from them, and since they were thought to be bottomless reservoirs, no one else would have noticed the difference. Coming to power, Gordon Brown took the point. A technical change in the Finance Bill was all that he needed to scoop £5 billion out of the funds, in the belief that more billions would always be bubbling up to replace them, so no one would notice the difference, and the money would go towards paying the bills which have multiplied so stupendously under his stewardship. By now he must have taken £40 billion out of the pension pool. Isn't that clever of him? Not exactly. Some of the costs are becoming apparent as his Pensions Bill lumbers through Parliament, with new clauses being improvised and bolted on at every turn. One of them could compel employers to pay extra money into their pension schemes so as to keep them topped up. Another provides for the government to contribute £400 million — or about 1 per cent of the Chancellor's booty — into a bailout fund, financed by good pension schemes, which will be required to pay for bad ones. This new liability for every scheme will push those in deficit — as the majority probably are — one step nearer the edge. Any employer with any choice will run a mile. No wonder that conventional schemes paying pensions linked to final salaries are now a dying breed. They will survive only in the public sector, and you can guess who will pay for them there.
Pensioned off
To think that we used to be told that our pension schemes were the envy of Europe. Ours were properly funded, theirs were payas-you-go affairs. Better still, ours seemed to pay for themselves. Two decades of benevolent stock markets helped them along. Companies took long holidays from paying contributions. Directors learned to dip into the pool. No wonder Gordon Brown was tempted to take a dip himself — but his timing proved disastrous. The markets boiled over, buying annuities for paying pensions became vastly more expensive, and the pesky pensioners were living longer. Companies with schemes like these found themselves, inadvertently, in the life assurance business, and feared to share the fate of Equitable Life. Standard resolution for every boardroom, proposed by the finance director, seconded by the chairman: we're closing our scheme to new entrants.
Provoking Crow
Now we can look forward to a pension strike — or rather, a strike with pensions as the casus be//i. Bob Crow, the combative union leader, fumes that the railwaymen's pension scheme is being closed to new entrants. Those who are in the scheme and on the rails will stay there, but new recruits to the industry will be offered what he calls a glorified savings plan. This has provoked him into balloting his members with a view to calling them out. It has happened to many of the railways' surviving customers — if they work for Barclays, for example, or for Marks & Spencer — but it is not good enough for him. What he calls a glorified savings plan is what pension providers call a money purchase scheme. All this can aspire to offer is the best pension that money can buy. Its value will not be linked to final salary levels or anything else except the amount of money paid into the scheme on the prospective pensioner's behalf, and the success or failure of the managers who are looking after it. Put like that, it has the merits of clarity and certainty, even if Mr Crow finds it provocative.
Glorified savings
To believe that we could all retire on pensions linked to final salaries was always an illusion. It postulated a world where we worked for one employer all our lives, starting in the postroom and ascending to the boardroom. Few of us, nowadays, do. We move about, we dip in and out of work, we work part-time or work for ourselves. In the jargon of a final salary scheme, we are early leavers, and must subsidise the dwindling minority who stay the course. These schemes can only work by cross-subsidy, with the postroom paying for the boardroom and the leavers for the stayers. It would be nicer if they worked by magic, with the Pension Fairy always there to conjure up the money that was needed. At different times, Mr Brown and Mr Crow may have believed this. The unglorified truth is that all pension schemes are saving schemes. Money is put aside now to mount up, with luck, and to pay the bills later. The only alternative, in retirement, is to pass the hat round, and the Fairy cannot be expected to contribute.
Value for money
Savings can be used to buy pensions, but savings will buy more than that. Savings buy freedom of choice and of action. Savings give us independence — from employers whose schemes require us to sit it out until we hang our hat on a pension, and from ministers who like to know better than we do what we should do with our lives. All these good things are expensive but worth it. Savings are also the only solid foundation for an economy where investment is expanding, as it must. For years now, our own economy has rested not on saving but on borrowing and spending, with the great British householder showing the way and the Chancellor learning by example. Instead of tinkering yet again with the legislative framework in which pensions are supposed to grow, he should be thinking of a framework which would foster long-term savings, whatever form they took, and would treat all those forms alike.
Put not your trust
If only simplification were Gordon Brown's style, but, of course, it isn't. His tangle of taxes and National Insurance contributions and credits for everything — even a nanny — has produced an unintended consequence. Millions of people are penalised for making an effort to provide for themselves in their old age. Then he tries to make it up to them with a pension credit, advertising it with pictures of a fiver: 'Go on, pick it up, it's yours.' No wonder that so many of them are scared to take the bait. Whatever lessons life may have taught them, they must have learnt not to bet their old age on a minister's promise.
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