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All four aspects of the Government’s pension strategy are now in disarray. As pension promises crash around our ears, nothing less than a total rethink of the current pension strategy is sufficient.

The failure of Stakeholder pensions to take off is the least of the Government’s worries. Sales have proved modest and go mainly to those above the target group of low earners set by the Government. More worrying is that actuaries are advising those contracted-out of the new State Second Pension to return promptly. As more and more individuals follow this advice, so the Government sees it objective of severely limiting the cost of the State Second Pension disappear before its eyes.

Much more worrying is the message that has accompanied Labour’s more generous means-tested help to pensioners who could not or would not save. Saving for retirement can damage your health is now the theme running strongly throughout the country.

Most worryingly of all, however, is what is happening almost daily to occupational pensions. Welfare’s outstanding success of the past hundred years is breaking up, with schemes closing to new and sometimes existing members. Other schemes are being wound-up without adequate funds and are thereby snatching away all or most of a workforce’s pension promise.

If the Government is worried about this pension catastrophe, engulfing an ever-growing proportion of the electorate, it shows precious little sign of its concern. Its June 2003 Green Paper was hailed as the tamest of documents since the publication of the previous pensions’ Green Paper. Proposals announced less than a month ago, to combat the horror of company pensions going under with funds inadequate to meet pension liabilities, appear now as an extraordinary combination of the inoperative and the dangerous. Andrew Smith, who bravely asserted that past pension promises must be met if pension funds are to be wound-up, may live to rue that statement.

It can surely only be a matter of time before the two big credit rating firms catch on to the significance of his statement. Once they do, and take into account the size of scheme deficits, sometimes over half the market value of the parent company, credit ratings will plunge. Companies will find it much more difficult to borrow, or only at much greater cost. The long-term impact on jobs and company survival are not hard to predict.

A much subtler approach is demanded to catch the pension monkey. The two parts of this alternative strategy have already been presented to Government. Yet, last Friday the Government blocked my Pensions (Winding-Up) Bill, which was one half of this programme. It contained four key short-term reforms.

First, shares in pension funds being wound-up should be determined largely on the number of contributory years of members. Second, a new insurance scheme for defunct pension funds must have borrowing requirements to see it through its first difficult years. The Government has drawn back in horror at such a suggestion. But there is nothing particularly extraordinary about such a reform. Borrowing powers were given to poor law authorities as far back as 1863.

Third, the fees of fat cat advisors on pension fund wind-ups must be capped. Lastly, the bill blocked by the Government on Friday sought to ensure that those tens of thousands who have already lost their jobs, often their home, and much of their pension when their company went under, would be compensated. It proposed a levy on unclaimed bank and building society assets.

At the same time as constructing a seaworthy lifeboat, the Government has to rewrite completely its long-term pension strategy which is also in ruins. The Chancellor’s means-tested Pension Credit is not sustainable as it will over the next fifty years add 11p to the standard rate of tax. Here’s a good topic for Mr. Hain when he next ventures out of his box.

What the Government seems unable to grasp is that a sound long-term strategy would do more than anything else to lessen the pressure on company pension schemes which might otherwise collapse.

The Pension Reform Group has attracted on to its working parties possibly the most impressive group of financial and business talent ever to advise on this issue. Its Universal Protected Pension (UPP) aims to provide a minimum income by rolling-up the current state provision with a new funded scheme. It will be managed by an institution similar to the Bank of England’s Monetary Policy Committee, showing that a national scheme can be at arms length from the state.

The UPP offers a universal pension which takes everybody above means-tested assistance. Every penny a worker saves is therefore added on to this new pension. The means-test savings alone would allow, for example, the abolition of income tax for pensioners.

Establishing such a scheme would also send out the most powerful and helpful message to the ailing company pension sector. By providing an adequate minimum, which would be deducted from company entitlements, the UPP helps cap their escalating pension bill. It would do more than practically anything else to maximise the survival of company schemes, which until recently were rightly seen as the great welfare success of the past hundred years.


			A better way to solve the pensions crisis

		All four aspects of the Government’s pension strategy are now in disarray. As pension promises crash around our ears, nothing less than a total rethink of the current pension strategy is sufficient. The failure of Stakeholder pensions to take off is the least of the Government’s worries. Sales have proved modest and go mainly to those above the target group of low earners set by the Government. More worrying is that actuaries are advising those contracted-out of the new State Second Pension to return promptly. As more and more individuals follow this advice, so the Government sees it objective of severely limiting the cost of the State Second Pension disappear before its eyes. Much more worrying is the message that has accompanied Labour’s more generous means-tested help to pensioners who could not or would not save. Saving for retirement can damage your health is now the theme running strongly throughout the country. Most worryingly of all, however, is what is happening almost daily to occupational pensions. Welfare’s outstanding success of the past hundred years is breaking up, with schemes closing to new and sometimes existing members. Other schemes are being wound-up without adequate funds and are thereby snatching away all or most of a workforce’s pension promise. If the Government is worried about this pension catastrophe, engulfing an ever-growing proportion of the electorate, it shows precious little sign of its concern. Its June 2003 Green Paper was hailed as the tamest of documents since the publication of the previous pensions’ Green Paper. Proposals announced less than a month ago, to combat the horror of company pensions going under with funds inadequate to meet pension liabilities, appear now as an extraordinary combination of the inoperative and the dangerous. Andrew Smith, who bravely asserted that past pension promises must be met if pension funds are to be wound-up, may live to rue that statement. It can surely only be a matter of time before the two big credit rating firms catch on to the significance of his statement. Once they do, and take into account the size of scheme deficits, sometimes over half the market value of the parent company, credit ratings will plunge. Companies will find it much more difficult to borrow, or only at much greater cost. The long-term impact on jobs and company survival are not hard to predict. A much subtler approach is demanded to catch the pension monkey. The two parts of this alternative strategy have already been presented to Government. Yet, last Friday the Government blocked my Pensions (Winding-Up) Bill, which was one half of this programme. It contained four key short-term reforms. First, shares in pension funds being wound-up should be determined largely on the number of contributory years of members. Second, a new insurance scheme for defunct pension funds must have borrowing requirements to see it through its first difficult years. The Government has drawn back in horror at such a suggestion. But there is nothing particularly extraordinary about such a reform. Borrowing powers were given to poor law authorities as far back as 1863. Third, the fees of fat cat advisors on pension fund wind-ups must be capped. Lastly, the bill blocked by the Government on Friday sought to ensure that those tens of thousands who have already lost their jobs, often their home, and much of their pension when their company went under, would be compensated. It proposed a levy on unclaimed bank and building society assets. At the same time as constructing a seaworthy lifeboat, the Government has to rewrite completely its long-term pension strategy which is also in ruins. The Chancellor’s means-tested Pension Credit is not sustainable as it will over the next fifty years add 11p to the standard rate of tax. Here’s a good topic for Mr. Hain when he next ventures out of his box. What the Government seems unable to grasp is that a sound long-term strategy would do more than anything else to lessen the pressure on company pension schemes which might otherwise collapse. The Pension Reform Group has attracted on to its working parties possibly the most impressive group of financial and business talent ever to advise on this issue. Its Universal Protected Pension (UPP) aims to provide a minimum income by rolling-up the current state provision with a new funded scheme. It will be managed by an institution similar to the Bank of England’s Monetary Policy Committee, showing that a national scheme can be at arms length from the state. The UPP offers a universal pension which takes everybody above means-tested assistance. Every penny a worker saves is therefore added on to this new pension. The means-test savings alone would allow, for example, the abolition of income tax for pensioners. Establishing such a scheme would also send out the most powerful and helpful message to the ailing company pension sector. By providing an adequate minimum, which would be deducted from company entitlements, the UPP helps cap their escalating pension bill. It would do more than practically anything else to maximise the survival of company schemes, which until recently were rightly seen as the great welfare success of the past hundred years.

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