The pensions asylum

A rather excellent piece on the pensions debacle from Not the sexiest subject, I know but it might interest some of you. Now we just need to get its author to become the Tory leader......

The pensions asylum
Martin Campbell

After almost a decade of working in and around UK pensions reform, I’m probably more in danger of missing the ‘big picture’ than many less immersed commentators. But even with numbed senses and proximity blindness, recent observations have left me convinced that the pensions hot potato was thrown into the madhouse a long time ago.

The very latest revelation underlines just how crazy things have become. Whilst the pensions crisis has been deepening and he has recently talked of personally taking a hands-on role in sorting it out, Tony Blair has also been sorting his own pension out.

It’s only just come to light, perhaps because it was originally made public very quietly in the week Doctor David Kelly died. In simple terms, on top of his pensions of about £100,000 per year, Blair has had a further ‘Cabinet Office Allowance’ increased from £47,000 to more than £90,000 a year, assuming he goes at the end of his third term. That’s nearly £200,000 a year for the rest of his life paid for by the UK taxpayer, struggling to save towards their own modest pensions. Truly breathtaking.

It’s long been more than a little ironic that the failing pensions system we all rely upon to provide our income in retirement is controlled by the two bodies quite unaffected by the quality of their stewardship - the Government and Civil Service. They rule pensions - very directly through state pensions policy and only slightly less directly through controlling private pensions (really just a series of tax rules and regulations policed by the Inland Revenue).

Feathering their own nests

Despite failing to solve the current UK pensions crisis, the Government and Civil Service have ensured their own retirement nests are very nicely feathered. We’ve already talked about Mr Blair’s pension. But all MP’s pensions – especially through recent increases – should make any of them blush. And the civil service continues to enjoy the most generous and most secure final salary pension arrangements, while private sector schemes are closing up and down the country and the fall-back of the state pension continues to decay.

When the gap between ‘us’ and ‘them’ was smaller - and it wasn’t that long ago - it was easier to be more relaxed and philosophical about who controlled pensions. Being such a broad-based issue, with such significance to social policy, the Government and their supporting civil servants seemed sensible captains of the ship.

But now the ship has been sinking for some time, and we’re getting increasingly frustrated that the lifeboats haven’t even been released yet. When we realise that the crew has been busy arranging for their own exclusive helicopters to winch them off to their own comfortable retirement, we have more than a little right to feel angry.

Sinking HMS Pension

Worse still, the ship has been sinking as a direct result of the crew’s actions.

Chancellor Gordon Brown’s nastiest of all stealth taxes - removing tax relief on dividends within pensions funds - cut a damn great whole in the hull. It only took the stock market turning the seas rough for a few years to make that a disastrous move for the country’s pension funds.

And since 1997, the life raft that is the state pension has been turned into a complex, bureaucratic mess that can barely stay afloat under the absurd weight of more and more means testing, let alone keep us all safe and dry.

Back at the madhouse analogy, many experts have been left scratching their heads over why the Government continues to treat solving the pensions crisis as vastly more complex and involved than the relatively straightforward matter it is. Adair Turner’s recent pensions crisis report bought them more time - conveniently just enough to get past the next election.

Yet there is now unprecedented consensus as to what needs to be done. Replace the state pension, with all of its confusing, costly and demotivating means testing, with a higher universal state pension for all. Paying for this vastly simpler and more generous 'citizen’s pension' can be covered very simply through diverting funds that are currently used to pay incentives to ‘contract-out’ of the state second tier pension, no longer relevant with the new citizen’s pension.

Politics and pensions don’t mix

Of course the reasons for delaying this reform are political. No Government seeking re-election inside 12 months is keen to admit what a hash it’s made of some important policy. So getting specific about what needs fixing and with it coming clean about the blind alleys they’ve had us all going down since ’97 is better done after the election next year.

But I do wonder if the electorate is going to be that malleable and cooperative in the run up to the next election. The pensions crisis is big news now – and it’s impacting more and more of us everyday. The Government would be wiser and indeed would show far more integrity if it tackled the crisis right here, right now. As experts have pointed out quite recently, the sooner the crisis is tackled, the easier the task will be. Playing further politics with pensions will be very dangerous.

Pensions civil war

If the crisis is not solved quickly and effectively and the current problems and status quo are left to fester further, a pretty scary scenario faces the UK.

We will become a two-tier society – the public sector ‘haves’ v the private sector ‘have-nots’

Politicians with wonderful guaranteed incomes in retirement, paid for by the taxpayer. And the civil service with its generous final salary pensions, effectively immune from stock market risk because its schemes are underwritten by the taxpayer. Markets go down – taxes go up, just as we’ve seen over the last 4 years.

On the other side of the tracks will be the private sector taxpayer. His state pension is decaying to almost nothing, so he has to save towards his own retirement or it will be truly miserable. But saving for his own retirement is made almost impossible because he’s already paying for someone else’s – all those in the Public Sector looking forward to a retirement he can only dream of.

Now, seriously, how long is the population going to swallow that?

Message to Westminster: sort out the pensions crisis fast, before too many more people realise just how comfortable you are, and just how poor they are going to be in retirement. Or the hunting protests will look like a happy village fête.
The remarks I was going to make are fit only for the naafi bar. Good article. About a quarter of my income goes into pensions and investments and I'm bloody worried about retirement. I'm still in my 20s by the way.

Articles like this are a wake up call to those who haven't thought much about retirement. I think that this effects most arrse members be they TA or even those with a 22 year pension. Whatever you're saving probably isn't going to be enough...

Similar threads

Latest Threads