Sunday Post – Scandal of our different rules for banks' pensions
Sunday Post – Scandal of our different rules for banks’ pensions
by Dr. Ros Altmann
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Are bank workers superior to all others? When it comes to pensions, it seems the Government thinks so.
The banks made monumental mistakes in their lending and investment policies, which led the country to the brink of financial meltdown. This forced Government to commit billions of pounds of taxpayers’ money to bale out the banking system. We will all be paying for this for years to come.
Of course, few of us would argue that it was wrong to ride to the rescue of our financial system, but the Government, in its haste to fix the problem, is creating yet another pensions scandal. Taxpayers are not just saving the banks, they are also saving bank workers’ pensions in full. Yet, such special treatment does not apply to anyone else in the private sector. Millions of people have suffered pension losses and did not get taxpayers’ help.
There seems to be one rule for bankers and another one for everyone else when it comes to pension protection. Businesses up and down the land have gone bust – some failing because banks refused to support them – and workers have lost not only their jobs, but also some of their pensions. No taxpayer bale-outs for them at all.
In fact, the Government itself created one of the worst pension scandals in history when it consistently maintained that taxpayers could not replace lost pensions. Those affected by past pension losses must be outraged at this favouritism for bankers.
It was not long ago that fine Scottish firms, including Blyth and Blyth, United Engineering Forgings and Motherwell Bridge ran into trouble and their workers lost their entire final salary pensions because Government had not provided the proper pension protection it had promised. For years, Ministers refused to help, leaving these workers fighting and begging for justice. They even had to go to Court, while Ministers kept insisting that taxpayers could not pay their pensions. Eventually, after its arguments were rejected time and again, the Government finally set up a Financial Assistance Scheme. But this only pays back part of their pensions, not all, because apparently taxpayers could not afford to replace the pensions in full. Yet, at a stroke, taxpayers are suddenly able to afford to pay bankers’ pensions without any reductions.
Why are bankers being singled out for such special help? The Government has offered no justification for this and such careless disregard for fairness risks creating another scandal. After the furore over Sir Fred Goodwin’s pension, it would have been good to see Ministers paying more careful attention to the pension issue. Sadly, they have not.
All the rules have just been tossed aside. In 2005, the Government established a Pension Protection Fund (PPF) to protect company pension schemes. When firms fail, workers’ final salary pensions are taken over by the PPF, which is an insurance arrangement funded by all other pension schemes, not by taxpayers. The PPF does not pay pensions in full. Very highly paid staff can lose more than half their pensions as the PPF cap limits compensation to around £29,000 a year, although most workers will get 80%-90% of their pensions replaced. But bankers are by-passing this system and are not being treated like other workers. Taxpayers have to pay their pensions in full.
The costs of replacing bank pensions could be huge. Northern Rock’s pension fund has a deficit of over £100m, Bradford and Bingley’s deficit is another £100m and the deficits for Royal Bank of Scotland, HBoS or Lloyds, exceed £4billion. Taxpayers are standing behind all these schemes, while other private sector workers end up in the PPF. Why are bankers being favoured like this? Even the Dunfermline, which was a building society and not a bank, has been put into the PPF.
Such disparities raise wider issues of fairness and social justice. What rationale can there be for treating bankers as a superior class of worker – what is the rationale for this? If the PPF is not good enough for them, then it should be improved for everyone. The same rules should apply to all.
Saving the banks is one thing, but this does not require saving bankers’ pensions as well. This represents a huge extra expense to which the Government has committed taxpayers, without careful thought. One has to question whether policymakers have a sufficient grasp of financial reality when it comes to pensions. It seems almost as if the Government does not consider these pension costs to be real – perhaps because they only have to be paid over many years, not all at once. But, of course, the fact that pensions have to be paid out over a long time horizon, does not mean the costs can be ignored.
Saddling taxpayers with a bill for these failed bank pensions flies in the face of all the Government’s previous pronouncements that taxpayers could not afford to replace pensions in full, especially as taxpayers themselves do not generally have such pensions.
We need a consistent approach to pension protection, rather than discriminating in favour of select groups. The last thing we need is yet another pensions scandal, so I call on the Government to ensure all workers have the same level of taxpayer protection. Surely justice demands equal treatment for all.