Shambles Fails to End Labor Pension Shame

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Shambles Fails to End Labor Pension Shame

By Maria Scott, The Observer

February 15, 2004

Don't be fooled by the Government's latest pensions proposals, published last week. They are not, as some headlines suggested, a package designed to deal with the nation's pension crisis.

Instead it is still basically up to you to save hard and fast if you want to live on more than the state's meager retirement handout. And the returns on your private saving are still dismal unless you are a long-time member of a very generous employer's scheme.

The latest proposals are a reaction to the outcry that has rightly accompanied revelations that 60,000 people have lost their final salary occupational pensions because their employers went bust.

The Government has responded with a plan for a compensation fund. Today's victims will not be repaid, but the idea is that such personal tragedies will be prevented in future. The problem is that the Government doesn't want to ask taxpayers to finance such a scheme even though, indirectly, many will pay in the end.

Employers will have to pay, and industry and pension experts are deeply unhappy. A similar scheme in the US has a multi-billion dollar deficit. The extra cost of supporting a UK compensation fund could persuade more employers to reduce benefits for members or even shut their final salary schemes to existing employees.

More will instead offer money purchase pensions - where there are no guarantees of retirement income although at least members' savings cannot be lost if the employer goes bust.

A man aged 60 now needs a money purchase fund of about £100,000 to buy an annual income of roughly £6,500 a year, with no inflation-proofing. This is shockingly expensive, isn't it?

There is a pension mountain to climb, and the Government is stuck at base camp. The state scheme is too mean and too complicated. Private pensions can help only if people appreciate how much they must save. The Government's meanness in failing to offer financial help to people who have lost lifetime pension savings through no fault of their own is adding to the feeling of cynicism about its sincerity in encouraging private pensions. Its pension policy is still a shambles.

The Government's behavior over Equitable Life also continues to undermine confidence in pensions and investments. The Treasury has still not published the report it commissioned from Lord Penrose about the disaster but has passed edited highlights - or should that be lowlights? - to the management at Equitable.

There is an air of secrecy and furtiveness hanging over the report. Some recent ministerial utterances have prompted speculation that the delay is masking preparations for a compensation package. But Equitable's long-suffering policyholders are unlikely to hear anything official until the end of this month.