Brown’s pensions policy record
by Dr. Ros Altmann
(All material on this page is subject to copyright and must not be reproduced without the author’s permission.)
The Government has finally admitted that our economy is in deep trouble. Gordon Brown’s assurances that his policies had abolished ‘boom and bust’ were false. Sadly, we are not well prepared to weather the economic storms. The Government shows no real sign of having understood what caused the crisis. In fact, the panic measures it has taken are a continuation of the policies which led to our problems in the first place.
Since 1997, UK economic policy has been based on short-term pursuit of growth, boosted by irresponsible borrowing and irresponsible lending. Spend, spend, spend was the order of the day, while our once-strong savings culture has gone. With an ageing population, we actually needed more savings, not less. The Government did not put money aside for the future. Particularly worrying is that our pensions have been decimated.
The credit crisis has caused significant damage to pensions, but the problems had already been building up for many years. In 1997, Labour inherited what was considered to be one of the best private pension savings systems in the world. Since then, our company pension funds have crumbled. Most traditional final salary schemes have closed and replacement money purchase schemes are far less generous.
One of Gordon Brown’s first major policy changes, in June 1997, was to remove dividend tax relief, which reduced dividend income for all pension schemes. Many estimates suggest this has cost UK pension funds over £100billion so far.
And that was just the start. Increased regulation and continuing reforms have undermined pension savings. It is difficult to avoid the conclusion that this Government has been incompetent on pensions policy. I have often wondered whether our political leaders actually understand pensions at all. Or whether perhaps policy deliberately discouraged saving, in order to maximise short-term growth, regardless of the longer-term dangers.
Pensions need a long-term perspective but that has not featured in Gordon Brown’s policy agenda. The panic measures to shore up the UK banking system are another example of dangerous short-term thinking.
Ploughing billions into our banks, bailing out Northern Rock savers and 100% unlimited protection for retail deposits in an Icelandic bank are all damaging to pensions, but the Government has not recognised this. Or perhaps it just doesn’t care.
The 100% IceSave rescue – not even a British bank – implies that any UK retail depositor in any bank that fails in future will have to be bailed out by taxpayers too. Therefore, it’s now safer to put your money into a bank account than longer-term investments. Bank depositors apparently have a 100% unlimited guarantee, whereas long-term savings are at best only 90% safe under the Financial Services Compensation Scheme or Pension Protection Fund. Pension contributions do get tax relief, but the money is locked up for years and cannot be accessed even in an emergency, charges must be paid and the investments can perform dreadfully – as we have seen. So why bother with pensions?
Undermining long-term savings is a dangerously myopic policy. Demographic figures after 2012, show the numbers of people over age 65 growing sharply each year. The UK’s national insurance pension is about the lowest among developed countries, so without good private pensions, more and more pensioners will be at risk of poverty.
When will the Government wake up? We are in this mess because of excessive borrowing and lending at a time when we should actually have been encouraging savings for the future. The solution is not just to keep on borrowing more, without assessing the ability to pay back and where to cut costs.
In reality, Gordon Brown’s policies paid lip-service to the mantra of ‘prudence’ and responsible management of public finances, while actually massively expanding borrowing and public consumption. Banks, financial services and the public sector have flourished while manufacturing has withered.
Inadequate regulation is also to blame for the crisis. As the Government wanted people to borrow and spend, rather than save or invest, the Financial Services Authority (FSA) – the Regulator set up by Gordon Brown – has operated asymmetrically. Long-term savings have been hit by over-regulation but lending was hardly regulated at all. The so-called ‘light touch’ regulatory regime has made it far easier for people to take out a £200,000 loan on a self-certified mortgage they could never repay, than to put £20 a month into a pension plan.
However, there is one group that has been completely immune from the problems hitting private pensions. That is public sector workers. Their pensions are completely protected and guaranteed by us taxpayers. Maybe this partly explains the Government’s lack of concern for private pension difficulties?
Britain is in a worse position than other countries. The Government did not ensure the economy was growing within its means, failed to control spending and lending properly, and increased the public sector deficit substantially. Mounting liabilities have been hidden away off balance-sheet (such as public sector pensions and Private Finance Initiative) but this borrowing from future taxpayers will have to repaid and will damage our long-term growth prospects. The Prime Minister now wants to borrow and spend even more, to try to get out of the crisis caused by those very policies. We have become addicted to debt, but we need to cut back now, not borrow more. It is time to find ways of cutting costs and wasteful public spending.
We need canny policymakers to steer us through these difficult times, not to destroy pensions as the population ages.