If there were a crisis, someone would be doing something. Instead Adair Turner, the pensions czar, seemed under no pressure yesterday to do anything but murmur the obvious. Like a man killing time in a pub, he remarked that if we do not save now we shall have less to spend later. There are no flies on Mr Turner. He is from McKinsey’s. I am surprised he did not add that two plus two equals four and that’ll be a hundred grand, guvn’r.
Everyone except the media seems relaxed about pensions. Mr Turner is so relaxed that he says a policy can wait until after the next election. It waited, after all, until after the last two. Mr Turner is said to be afraid of displeasing Gordon Brown, wise for an ambitious chap. For his part Tony Blair cannot stand any policy not fashioned from hot air. He has let his ministers argue over pensions for seven years. Why hurry now?
There are two things to remember about pensions. First, they are stupefyingly dull. Secondly, when push comes to shove, they bring out the worst in everyone. Nobody cares about old Joe once he has taken the clock and gone. Corporate executives are allowed to collapse their employees’ final-salary schemes while building “top-hat” pensions for themselves at their employees’ expense. It beggars belief.
Even Mr Brown robs Peter to pay Paul. He imposed a £5 billion tax on private pensions to help to pay for public sector ones. While private pensions have collapsed over the past three years, Civil Service payouts have been soaring. To crown it all, Mr Brown capped tax relief on private schemes at £1.4 million in value. At the same time Mr Blair was revealed as having a tax-funded scheme worth £3 million . In this business it is every man for himself.
The story of Mr Brown’s £5 billion raid on private savings has oft been told, most vividly in Tom Bower’s savage biography out this week. He was warned that past surpluses built up by private pensions were in swift decline. He was warned that the Nasdaq and dot-com boom was a bubble and that collapsing share prices might devastate hundreds of thousands of pensions. He was warned that his pet tax credits were anti-savings and his stakeholder pensions worthless. Yet he tried to extract not £5 billion but £8 billion a year from the pension funds. According to Mr Bower, the Chancellor thought that “the middle classes would not feel any immediate pain”.
Mr Brown has seen off one protesting pensions minister after another, Frank Field, Harriet Harman and Andrew Smith. His stakeholder pensions have indeed been a fiasco and the pension credits a huge disincentive to saving. As confidence in share-based pensions collapsed after 2001, savers tipped their money into property. Share values had raced ahead of house prices for 20 years since 1980. Mr Brown reversed this at a stroke.
As shares plunged, house prices soared. The Bank of England raised interest rates and now threatens a mini-recession. Companies have moved cash out of investment to support their in-house pensions, pushing shares down further. Mr Bower relates that, in a series of extraordinary meetings, Mr Blair tried to get Mr Brown to acknowledge the failure of the pensions strategy and do something. The latter grumpily refused. Mr Blair backed off.
Had pensions been weapons of mass destruction or global warming, Mr Blair might have gone on the warpath against his Chancellor. But pensions are boring and domestic. Cabinet ministers know they are themselves comfortably provided for. They can have no conception of the insecurity that Mr Brown’s decisions inflicted on ordinary people. Some retiring on private sector pensions are now receiving a third less than expected. Mr Blair kicks the ball to Mr Turner and the long grass. Nothing could be more casual.
I agree that this is no crisis, but it is most odd. The Government’s policy appears to be simply to let the old get poorer. People are living longer and they should be glad of that. New Labour, new wine and roses. Since there will be 80 per cent more pensioners by 2050, they will have to be paid somehow. With barely half the population in work and being taxed, the burden of meeting even present state pensions will rise fast. But Messrs Blair and Brown take the view that life is tough anyway and there is no point in making it less so. As Marie Antoinette might have said: “Let them eat tax credits.”
Mr Turner has served a purpose in setting all this out in black and white. There was a fool’s paradise during the baby-boom years. Revenue poured into company and institutional pension funds. As these funds are released to existing beneficiaries the “grey pound” has become the new North Sea oil. Ageing “boomers” will enjoy it, but their children should look on in envy. Those two sprightly dears on the stern of a Saga cruise liner will be succeeded by a generation back on the piers at Blackpool.
Mr Turner hints at various measures that might help. Since it is politically incorrect to suggest “poorer pensioners”, he has had to suggest the crashingly obvious. Perhaps the present cohort of workers might stay longer at the grindstone — say to 70 — so as to earn more and have less time to spend it. Perhaps they could save more than they are doing now. Perhaps their children could work harder to pay the taxes and contributions needed to support them. All these would help. But the reality is that most people not working for the Government will just have to live on less than they anticipated. A decent pension is, after all, as flexible a concept as an affordable house. That is Britain’s contract with economics.
The one thing that will make matters worse is more government intervention. The yearning of each Chancellor to be regarded as “the Man from the Pru” knows no end. We have had stakeholder. We have had means-tests and the pension credit. We have had Peps and Isas, reducing the BBC’s admirable Money-go-Round to a total spin each week. All we know for sure is that Mr Brown hates savings and likes the means-test.
The Tories, Liberal Democrats and Frank Field are surely right. There should be a basic state pension, available to all, no questions asked. The rest should be left to individuals, on their own or in collusion with their employers. There should be no age threshold on retirement. Company directors should not be allowed to steal pensions from their staff. There should be an end to the growing unfairness of public-sector workers enjoying earnings-related, index-linked, unfunded pensions-for-life.
With public employment, variously defined, approaching a fifth of the total workforce, the burden of these privileged pensioners will become crippling to other taxpayers. It is small wonder that Mr Brown has found eager takers for his 500,000 extra government jobs. The result can be seen most vividly in the staff budgets of police authorities. Some are now distributing almost as much in pensions as they are in pay. A secure job should be good enough. Retirement for all pensioners should be to a level playing field of risk. State employees, including Mr Blair, should be treated no worse or better than everyone else.
Then we can have a real debate. The nanny-statists can argue that joining a private pension scheme should be compulsory for everyone, as is often the case abroad. Libertarians can argue for voluntarism. The one thing we can all do is demand that Mr Brown stop taxing savings. It is encouraging house-price inflation and consumption. It is unfair on private sector workers. It encourages everyone to assume that the State will somehow look after them to the grave.
If Mr Blair’s neo-Thatcherite culture of self-reliance is to have any application it must surely be in the matter of savings. If any human virtue should be rewarded with tax relief it is the postponement of income gratification. Mr Brown disagrees. But then perhaps he is socialist more than a Scotsman after all.
simon.jenkins@thetimes.co.uk
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