The Great Pensions Robbery: How New Labour Betrayed Retirement [Paperback]

 

 

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Alex Brummer, City editor of the Daily Mail, has written a superb account of the pensions crisis and its causes. Before 1997 Britain's pension funds were solvent, with strong cash flows. £830 billion was invested in private pensions to meet future pension payments, more than the rest of the EU put together. We had the best occupational pension system in Europe. 90 per cent of private occupational pensions were final salary (defined benefit).

What caused the current pensions crisis? In 1997 the Labour government decided to remove the tax credit on dividends received by pension funds, which had allowed the funds to receive dividend payments tax-free. This was worth £5-6 billion a year. A fund receiving an £80 dividend, for example, could receive £20 of tax relief, which could then be reinvested in the fund to build up endowment for the future.

The Treasury and independent actuaries warned that this decision would push pension schemes into deficit, close down many occupational pension funds, and cut pensions. Brown ignored these warnings.

We now have a broken system of private provision and a state pension that is among the worst in Europe, supported by humiliating and complex means-testing. Labour opposed restoring the earnings link for the state pension. Two million pensioners are trapped in poverty.

By 2002, Britain's pension funds were paying pensioners on average 28 per cent less than in 1997 and final salary pension plans were nearly dead: two-thirds had been closed to new members. Most firms that cancelled these plans moved future retirees into money purchase schemes, shifting the risk from employers and shareholders to employees.

Thus Labour obeyed European Union diktats. The European Central Bank in April 2003 demanded `reductions in public pensions' and `measures to raise the effective retirement age'.

Later, Brown proposed a pension tax credit guaranteeing a minimum income, saying that it would cost £2 billion in 2004-5. His advisers pointed out that since half the population would at once be eligible for the credit it would cost more like £10 billion a year. Brown said, "We're only committed to pay the credit for the next five years. We can change it after that." The questions came, "But what about after? People save for 20 years for their pensions. They won't believe in you and they won't save. And what happens to their pensions after five years?" Brown ignored them.

The value of assets in life assurance and pension funds fell from 176 per cent of GDP in 1999 to 128 per cent in 2008. In January 2009 the Office of National Statistics calculated that the deficit in defined pension schemes - the heart of Britain's occupational pension system - was £194.5 billion.

The government also refused to bail out Equitable Life's one million plus pensioners, who include Tesco and Post Office workers, who lost out due to the government's regulatory failure and maladministration, although it bailed out depositors with RBS and Icesave.

The government bailed out the banks, but ripped off all our pensioners.

Gordon Brown has the dubious distinction of destroying the long established British pension industry. He was able to do it because of his arrogant belief that he alone knew how to manage the economy, all other social issues were subserviant to Treasury control and his private coterie of advisers knew more about pensions than specialists in the field. What followed was a disaster. Many pensioners robbed of their retirement funds, real social change was thwarted and many of the poor were reduced to poverty. This was not the fault of the civil service, the bankers or capitalism, but of the Blair government generally and Gordon Brown in particular. The great pensions robbery is the story of "how New Labour betrayed retirement".

The characterisation of Labour as the party of tax and spend was glossed over as New Labour approached the 1997 election. Their platform was "no tax rises" but, even before the campaign began, Gordon Brown knew the Party's commitments could only be met by raising revenue. Meeting secretly with a small group of advisers, including millionaire MP Geoffrey Robinson, media mauler Charlie Whelan and future MP, Ed Balls, Brown's cabal devised a method of raising revenue while chanting the "no tax rises" mantra. By removing tax credits allowed to pension providers Brown could raise £5 billion per annum. The planned move was kept secret until, as one Treasury official put it, the "spivs..set foot inside the building."

Brown was determined to stamp his authority on the Treasury. When an official said, "the state of the economy is much better than expected," Brown snarled, "What am I supposed to do with this? Write a thank-you letter?." He commissioned four reports from the Treasury and Inland Revenue to explain the implications of his proposals. All four reported concern about the negative impact of the proposal with one suggesting that if it were to be introduced it should be phased in. Brown ignored all the advice and told Parliament, "Many pension funds are in substantial surplus and many companies are enjoying pension holidays". This was unsubstantiated and New Labour passed the first of its many stealth taxes.

The process of reducing tax credits had begun under Lawson and continued by Lamont but Brown removed the credits with immediate effect resulting in pension providers needing to find £5 billion, mainly from a bouyant stock market. Whereas previous governments had consulted widely Brown did not. New Labour's ideology was that everyone wanted to save for retirement but were prevented by commission hungry salesmen. Therefore they introduced stakeholder pensions which did nothing to encourage saving amongst the poor but served as another tax haven for the wealthy. In addition, Brown introduced the idea of a Super Regulator, the Financial Services Authority (FSA), which proved unfit for purpose.

It's suggested Blair was blind-sided by Brown and lacked the appetite to fight him in Cabinet where Frank Field, whose job was to think the unthinkable, opposed Brown's policy as unworkable. Field noted Brown, "was all-powerful in the domestic sphere and very unyielding and ungenerous in his approach. He was not prepared to listen to people and would avoid discussion and debate about a subject." Field's term of office was short-lived. Blair's inaction made him complicit in the disaster. During the thirteen years of New Labour responsibility for pensions was exercised by ten different Cabinet ministers.

By 2010, 83% of all final salary schemes existing in 1997 had closed. Between times New Labour continued to ignore advice from the industry, experts and the Treasury. According to Brummer, "The cancellation of the pension tax credit was a cruel act of industrial and social vandalism" concluding "the UK now has one of the meanest and most complex systems of state pension provision in the world. It is a ghastly legacy and one which betrays the memory of Beveridge and all that was good about Britain's post-Second World War social settlement." It's impossible to disagree.

There was another area in which New Labour and Brown proved to be incompetent and ignorant. The 1990s had seen numerous pensions scandals. Robert Maxwell robbed his companies' pension schemes while various loopholes had allowed directors to deprive employees of their pension rights while keeping their own. New pension legislation was in place in 1995 to deal with the issues raised. However, one matter fell within New Labour's purview. Equitable Life had introduced sharp actuarial practices to suggest it had more assets than was the case. This allowed it to pay out bonuses out of profits it did not have but which it anticipated would be earned in the future. In 2000 Equitable Life closed its doors to new business with a total deficit of £4.4 billion.

While the origins of the crisis lay with Equitable's management "a fair measure of the blame for the way...things ...spiralled out of control had to be laid at the door of New Labour." Equitable policy holders demanded the introduction of a compensation scheme as their policies had devalued while they waited for their policies to mature. Different reports blamed the management but also the FSA. Between 2000 and 2008 over 30,000 Equitable policy holders died while the government paid lip service to the principle of compensation but practiced avoiding any responsibility for establishing a compensation fund. It was still not in place when New Labour lost office in 2010. By then final salary schemes were more or less dead and social attitudes had hardened against savings to the extent that more people work without pension provision and expect the state to provide for their retirement. This splendid book shows why.

The definitive detail of how New Labour robbed the average pensioner or near pensioner and ultimately ended final salary pensions for the private sector. However new labour bottled it when dealing with the public sector.

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5.0 out of 5 stars Why I Will Never Vote Labour Again
Pensions are, to most of us, very technical things. Also, like getting old, we try not to think about it. Read more

Published 18 months ago by Mr. S. R. Wheeler

4.0 out of 5 stars Pensions Robbery
If you want to know Gordon Brown's real legacy, & why you will not retire at 65, read this book.
The Great Pensions theft is Brown's real legacy to those of us still working... Read more

Published 19 months ago by Mr. R. Kerr

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