Money Marketing article – restoring confidence in pensions
by Dr. Ros Altmann
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As if confidence in pensions was not damaged enough, last week’s disgraceful Government response to the Parliamentary Ombudsman’s report on occupational pensions has dealt another grievous blow. Government’s own Ombudsman has uncovered that Government departments deceived the public and produced leaflets to inform members about their pensions which only mentioned the benefits and not the risks. Financial industry take note.
The Government’s attitude was careless and cavalier, but it is now trying to say these were only ‘general guidance’ and the public should never have believed the information or relied on it, even though, when it was produced, Government said it was being prepared for the public to rely on. Alistair Darling said ‘the public rely on Government information. They are entitled to be reassured that leaflets are accurate and comprehensive’.
In 1998, the Government announced it would be working with the Regulator to launch an education campaign, to explain pensions to the public. It said this was needed, because, after the Maxwell scandal and pensions mis-selling, people did not know who they could trust, so the Government decided to take it upon itself to produce ‘impartial’ guides. Unfortunately, the guides were misleading and failed to give proper information.
The FSA guides actually said that final salary pensions were ‘guaranteed… which makes it easier to plan for retirement… unlike personal pensions where the amount of pension you will get is unpredictable’. The guides did not mention one word about risk, no sentence alerting members to the fact that they could lose their entire pension on wind-up. The Government and the Regulator were encouraging people to put money into their occupational pension schemes, assuring them their pensions were safe, and failed to warn of any risk.
The Parliamentary Ombudsman has found that Government is guilty of maladministration and says they should compensate for the losses which people have suffered, when their pensions disappeared without any warning. Members were denied any chance to protect their retirement income. They were also denied any chance to diversify their pension holdings, because once in the company scheme, the Inland Revenue would not allow them to have any other pension. The Chairman of the FSA has insisted that it did nothing wrong. The fact that the FSA guides claimed that they were designed to help members consider the important questions about their pensions, and yet failed to mention the one most important question of all (‘what would happen if my scheme winds up?’) is ignored. The Chairman defends calling these pensions ‘guaranteed’, because there is apparently a ‘lay’ definition of the word ‘guarantee’ which does not mean what everyone else would normally think it means! We cannot have a Regulator that has one rule for the industry and one rule for itself. That way lies anarchy.
One has to wonder why taxpayers’ money was used to produce these leaflets if they were not meant to be accurate. Financial companies or advisers should be clamouring for a refund of the compensation they have been forced to pay by the FSA, for failing to provide adequate risk warnings to members, or even perhaps for pensions mis-selling.
What the Parliamentary Ombudsman has uncovered is that the Government only designed the Minimum Funding Requirement to provide a 50/50 chance of non-pensioner members getting their full accrued pension. Yet, the Regulator forced people to put their compensation back into company schemes which subsequently failed, on the basis that such pensions were actually totally safe and protected. Many have now lost their compensation and their pensions, because of the actions of the Regulator itself.
This is a scandal of enormous proportions and goes to the heart of the way Government treats the industry and the public. If Government makes a mistake, it will refuse to pay up or blame everyone else. If the industry does something wrong, they are made to compensate quickly and in full.
As for the National Pension Savings Scheme – this is surely dead in the water. Even if Government assures people that the scheme is safe, ‘low risk’ or even ‘guaranteed’, no-one can believe this. In a few years’ time, if investors lose all their money due to some unforeseen circumstance, they now know that Government will just say ‘hard luck, you should never have believed what we said’.
I would ask all readers of Money Marketing to contact their MPs and request that they support full compliance with the Parliamentary Ombudsman’s findings and recommendations. It should cost up to about £150million a year – which is easily affordable. The official errors in pension credit cost £130million last year alone, so the Government can hardly say this is unaffordable. If nothing is done, how will we ever restore trust in pensions, or indeed in Government?