In 1614 Sir Thomas Coningsby founded an almshouse in his home city of Hereford. He had amassed a fortune working for the Government and endowed a foundation for service veterans and his own “worn-out” retainers. He did so “to the honour of God and also for his Preservation against Malice”. A few Blairite peers might care to do the same.
Comfortable chambers were provided round an old monastic courtyard, with dining hall, infirmary and chapel. Everything was stipulated, from the colour of the cloaks to the precise bread, meat and coal ration. “Coningsby’s Company of Old Servitors” lives comfortably in that courtyard to this day.
Their incumbents are not with Equitable Life. Their company has not abandoned its final-salary pension scheme. Nor do they depend on the charity of the Pensions Secretary, Andrew Smith, who yesterday was in such a dither over whether to be cautious or radical over pensions reform. He decided to be cautious. He raised the state employees’ pension age from 60 to 65 and simplified pensions tax. But after five years of debate, all he could do was toss the problem of long-term savings reform to a “commission”, a sure sign of a minister out of his depth.
Something snapped this week. A big chunk of faith in a benign Government broke away and disappeared. To the media, kicking ministers no longer seems a democratic obligation, merely boring. The toecaps are too smeared in blood. Yesterday the Transport Secretary, Alistair Darling, was totally incoherent in somehow promising to “get a grip” on train punctuality and cleanliness. Alan Milburn no longer controls the hospitals. David Blunkett cannot stop immigration. Charles Clarke can only bankrupt universities. These men do not lack commitment or honesty. They just cannot deliver. Like nervous generals ordered to the front, they shoot guns in the air and deliberately lose their maps.
We know what the trouble is with pensions. The population is ageing fast. Company funds are going insolvent. The stock market collapse has wiped out a third of pension fund assets. Gordon Brown has taken a further £5.3 billion a year from them in new taxes for the past five years. This is almost the same as the £27 billion funding gap between what pensioners expect and what pension companies say they can afford.
Yesterday Mr Smith’s response was impressively sanguine. He said people should work harder and save more. This is true. It is not the Government’s job to nationalise savings. Its job is to offer a safety net for the poor and encourage individuals, companies and charities to stay out of it. The predicted cut of 20 per cent in some private pensions is not the end of the world.
What Mr Smith did not do, because he is Mr Brown’s clone, is end the tax on fund dividends. This tax, introduced in 1997, was in part a political decision secretly to tax the idle old, to avoid having to tax the active and industrious new Labour supporters. But it was also a tax on rich (private) pensioners to finance higher benefits for poor (state) ones. As such, it was almost the only left-wing act of this Government. Those who voted Labour can hardly complain.
Britons have long been smug about the “pensions time bomb” under other European countries, notably France and Germany. In those countries, underfunded pension liabilities have presaged economic collapse. When an ageing population starts to draw down pensions there will be neither the private nor the public funds to meet them. Enraged pensioners will fall back on the State, and the result will be soaring taxes, deficits and interest rates.
Britain has mostly held aloof from this bind. It has more money saved in private and corporate pension funds than the rest of Europe put together. The best practical reason for not joining a single European financial community was always to avoid Britain having to meet the eventual burden of the “Common European Pension”.
Pension funds are suffering from a temporary crisis. That will be corrected by a mix of higher contributions, lower payouts and a stock market recovery. I see no reason for a seismic change in government policy, least of all towards the state enforcement of savings. What people do with their own money is their business, even if it is something stupid.
I long for Green Papers to tell the whole truth. This one could have told the country that Government wanted it to stop whingeing and get lost. Private pension funds would not be bailed out for the excellent reason that they are private. Pensioners take a risk, in this case the biggest of their lives. They ought to learn what they are doing. They are entitled to regulation (and tax relief to help to keep them out of the State’s hair when old), but not to protection from risk. Some may have been fooled. But then some people voted Labour. There is no bailing out of that.
What the State should do is reform its own practices. Another destination of Mr Brown’s £5 billion-a-year revenue from the pension funds has been his own employees. State final-salary pensioners will be the old rich of the next generation. The big concessions to public service unions in recent years have not been on pay but on pensions. Millions of civil servants, teachers, policemen and firemen can manipulate their contracts to retire early on full pension — even in their fifties if they can work the “stress disability” scam. A third of the Metropolitan Police budget now goes on pensions. Mr Smith has raised the formal pensionable age to 65, but public sector indexed pensions are what Lloyd’s of London used to call “baby syndicates”.
Yet I am an optimist. Everyone this week seems more aware of the need to be more flexible about retirement and more open about saving for it. Enabling workers to take a higher pension if they wait until 70 is a good idea. It should help to make age discrimination less tolerable. People should work as long as they like, and be warned only that the earlier they draw their pension, the less it will be. Pay out more, but later, is a good policy.
Mr Smith need not scare people into saving, but he should educate them into its implications and responsibilities. The economist Peter Drucker pointed out ten years ago that the new age of “pension-fund capitalism” was “capitalism sans capitalists”. A pension was by far the biggest asset most people owned. Through it they also owned half of the nation’s business. Yet what they owned was in no real sense theirs. Drucker wanted people to feel part of the saving process. He predicted that “the integration of the real owners into the pension fund structure will require years of debate, experiment and scandals”. He was right.
The debate is far more vigorous in America. There high street stockbrokers encourage millions to scan the markets each day, knowing that their future depends on it. Saving should be part of the British school curriculum. Middle-class parents might even murmur to their children that, in future, pocket money, school fees and the “first rung” on the housing ladder should be regarded as a loan, not a grant.
This past week alone will have made people sceptical about all government activity. In hospitals, trains, roads, schools, immigration and now pensions, we have seen five years of hyperactivity — and nothing. It is five years since Frank Field was told to “think the unthinkable” about pensions. Now we have a commission to think some more. Perhaps Government has hit the impotence wall. Perhaps all it has ever really been able to do is raise taxes to look after its own people, as Mr Brown has done with pensions.
If so, every community should look to its own. It should take a leaf out of Sir Thomas Coningsby’s book and revive the spirit of voluntary help for the elderly. There are still 2,300 almshouses nationwide, providing 25,000 homes for poor pensioners. They are independent of government, privately endowed, reliable and well-run. Their sheltered housing is within the community and part of the community.
The present Treasury regime dislikes “not-for-profit” organisations because they pay no taxes. It is closing down private and voluntary care homes by tying them up in licensing, inspection and red tape. Mr Smith wants to drive pensioners back within the embrace of the State. This is stupid. The stigma of charity must be removed. Let a thousand almshouses flourish. I must get down to Hereford. I am sure Coningsby needs another servitor.
sjenkins@thetimes.co.uk
