Money Marketing article on double standards of Northern Rock rescue

by Dr. Ros Altmann

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Last week, the Government was forced to offer unprecedented, unlimited money-back guarantees to all Northern Rock customers.  Having failed to reassure the public with words, it had to put taxpayers’ money on the table.  The people queuing in the streets to withdraw their savings simply had no confidence in official statements.  Nobody trusted what Government said.  Why?

There are 125,000 people plus all their friends and families, who learned the hard way about the dangers of believing Government assurances of safety when it comes to their hard-earned money.  They were betrayed by Labour promises of protection and guarantees that did not exist when their company pension scheme failed.  Their stories have been highlighted in the Daily Mail countless times over the last few years.  The Parliamentary Ombudsman ordered the Government to pay 100% compensation.  The Public Administration Select Committee, European Court of Justice and High Court Judicial Review verdicts all agreed that the Government should have protected their pensions but failed to do so. However, while all Northern Rock’s customers have been rescued, the agony of the pension victims goes on. 

What kind of ‘moral compass’ permits billions of pounds to be earmarked to support building society customers (including millionaires) while betraying ordinary workers who lost their entire life savings in pension schemes which the Government assured them were completely safe, protected by  law and actually encouraged them to contribute to? 

Such breathtaking double standards are indefensible.  For years, Gordon Brown has refused to provide compensation to the pension victims, claiming that taxpayers’ money could not be used to underwrite their pensions and fobbing them off with a so-called ‘assistance’ scheme that has not worked.  Yet building society customers were rescued, in full, within days.

Tomorrow, for the fifth year in a row, naked pensioners will be back at the Labour Party Conference, highlighting how they are still ‘stripped’ of their pensions.  They will again have to travel from all over the UK, some losing a day’s pay, to beg for a proper rescue. 

Most of these would-be pensioners are still waiting for payment from the Government’s Financial Assistance Scheme (FAS).  The FAS is a cruel example of political ‘spin’.  While Gordon Brown claims that billions have been spent on rescuing the victims, the reality is that only £4m has been paid out since 2004 and it has cost nearly £10m in administration.  What a scandalous waste of public money.  The unfair FAS rules still totally exclude thousands of those affected too.  Tragically therefore, despite a lifetime of saving, many people have been forced to work through cancer or heart disease, some have died or committed suicide leaving widows without provision and others have had to sell their homes and move away from their families in order to make ends meet. 

Even for those who do receive money, the FAS only replaces around 65% of the pension they paid for (the Prime Minister’s claims of 80% are simply not true).  This is far, far from the 100% guarantee for Northern Rock.

The Government has betrayed the pensioners who, by law, had no choice about their pension contributions, while fully protecting private savers who were chasing higher rates.  I can see no justification for this.  

Both groups, in my view, are victims of regulatory incompetence and this is Government responsibility.  The post-1997 protection regimes for pensions and for savings have failed.    What use are regulators who cannot cope with a crisis? 

Is it any wonder that confidence in financial services – and in Government – have been destroyed?  Action is needed now.  Unless the pensioners are compensated fairly, trust cannot be restored.

I hope their journey to Bournemouth tomorrow will not be wasted and that Gordon Brown will use his first conference as Labour leader to commit to rescue them immediately.