House Magazine aAssurances that final salary pensions will be protected by legislation are threadbare – forked tongues on funds'
House Magazine ‘Assurances that final salary pensions will be protected by legislation are threadbare – forked tongues on funds’
by Dr. Ros Altmann
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For several years, Government policy has aimed to restore confidence in pensions and encourage more people to contribute. Unfortunately, amid successive scandals, confidence has continued to fall. Just as we seem to resolve one disaster, along comes another.
After Robert Maxwell plundered the pension assets of his 32,000 workers, a rescue scheme restored almost all their pensions. Then £12billion compensation was paid for personal pensions mis-selling and everyone hoped confidence would start improving. However, the Parliamentary Ombudsman’s report has conclusively revealed that at least 85,000 people lost most or all their occupational pensions, as the measures designed to protect occupational schemes after Maxwell did not work. This is now an even bigger scandal than Maxwell itself.
From 1997 onwards, Government assured the public that legislation properly protected final salary pensions. A new Regulator and member-nominated trustees (often union shop stewards) would help look after scheme assets, new laws over-riding trustee discretion and scheme rules would ensure ‘fair distribution’ of assets on wind-up, and the Minimum Funding Requirement (MFR) would ensure pension funds had enough money to pay workers’ pensions, whatever happened to the employer.
Sadly, however, these assurances proved false. The Parliamentary Ombudsman has revealed that, behind the scenes, Government decided the MFR should only be designed to give workers a 50/50 chance of getting full pensions if their scheme failed. Soaring bulk annuity rates dramatically reduced pension protection on wind-up even further. The Actuarial Profession kept warning Government that members should be told this, but all the while, Government’s official information insisted final salary pensions were safe! Thousands of loyal workers, who believed their Government’s words, have lost their entire occupational pension. Even worse, many have lost their contracted-out state earnings-related pension too. These so-called ‘Guaranteed Minimum Pensions’ (GMP) were not properly ‘guaranteed’ at all. Before 1997, GMPs were reinstated into the state national insurance scheme. After 1997, however, protection was via the increasingly inadequate MFR.
However, all official information said final salary pensions were ‘safe’, ‘protected by laws’ or ‘guaranteed’. Government’s general pension guides, designed to help people understand the benefits and risks of pensions, never mentioned the single biggest risk. They did not tell the public they must take financial advice either. Members were left completely in the dark. Government claims its leaflets were fit for purpose, but if people had known the true risks, they would have had a chance to protect their position. It’s too late for them to do anything now. They feel utterly betrayed.
Indeed, the Regulator forced people to put their pensions mis-selling compensation back into their company scheme, and they subsequently lost it all on wind-up.
As we consider significant pension reforms, these 85,000 families must inform the debate. If they are left without the pensions Government encouraged them to contribute to and said were ‘safe’, ‘protected by law’ and ‘guaranteed’, and, how can any future pension savings scheme be trusted?
The Parliamentary ombudsman has given her clear independent verdict that the losses are Government’s responsibility. For Government merely to say it disagrees with its own Ombudsman does not help. It just undermines confidence still further.
No-one is suggesting Governments should underwrite all private savings schemes. Compensation for these people would not set such a precedent. As long as future Governments are honest about the risks people face, such a disaster should never happen again.
All that is required to sort this out is an index-linked sum of up to £150million a year, for 40 or 50 years (not billions of pounds today!).
The issue now is what the Government intends to do to alleviate the suffering of 85,000 innocent victims who believed and trusted the Government’s words on pensions. This is a test of Gordon Brown’s character and leadership qualities. I call on him to take charge of this situation and rectify this dreadful injustice.
I am sure the nation believes the Government’s intentions are honourable, but, after years of begging and despair and in the wake of the devastating independent verdict, it is now time to put enough money on the table. The future of pensions and our Parliamentary democracy demand it.