Why are bankers' pensions entitled to 100% taxpayer protection?
Government still ignoring social and financial impact of pension inequalities - as with public sector pensions

by Dr. Ros Altmann

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21 August 2009

  • Bank workers' pensions 100% protected by taxpayers. All other workers' pensions have no taxpayer protection at all if their company fails.


  • This raises a wider issue of fairness and social justice.


  • Government has not provided any justification for this unequal treatment


  • As with public sector pension liabilities, social justice and the long-term cost implications of pension commitments are being ignored in the interest of short-term expediency


  • One has to question whether policymakers have a sufficient grasp of financial reality when it comes to pensions


  • A growing elite (workers in the public sector and failed banks) whose pensions will have to be paid by future taxpayers, when those taxpayers themselves will not have such pensions

There is one rule for some workers' pensions and a different rule for all the others.

If you work for a bank, your final salary pension is 100% protected by the taxpayer in the event that the bank fails. Northern Rock, Bradford and Bingley, RBS, HBoS and Lloyds pension schemes have been protected in full by taxpayers. But if you work for any other company, your pension will end up reduced - sometimes significantly - with no taxpayer protection at all if your company fails.

The Northern Rock pension deficit alone is over £100m. Bradford and Bingley's deficit is another £100m (with just 350 active members of the scheme). Taxpayers will apparently have to pay all of this. And that's before we consider RBS, HBoS or Lloyds, where the deficits are over £4billion.

This raises a wider issue of fairness and social justice. It seems that policymakers consider bankers are a superior class of worker. If bank pension schemes are 100% underwritten by the taxpayer, why is it right that all other workers face substantial reductions if their employer runs into trouble?

The Government has not provided any justification for this unequal treatment and one has to question whether policymakers have a sufficient grasp of financial reality when it comes to pensions.

This situation is reminiscent of the Government's insouciance in the face of mounting public sector pension liabilities. The fact that pensions have to be paid out over a long time horizon, does not mean the costs can be ignored. Taxpayer funds are being committed on a massive scale to substantial long-term commitments, without any budgeting in place to ensure the money is set aside to pay the costs. In its panic to shore up the banks, the Government has failed to factor in the substantial sums involved in pensions.

Saddling taxpayers with a bill for these failed bank pensions also flies in the face of all the Government's words on pension protection in the past. Ministers have always insisted that, if final salary pension schemes fail, taxpayers could not afford to replace pensions in full, especially as taxpayers themselves do not generally have such pensions.

I call on the Government to ensure all workers have the same level of taxpayer protection, rather than singling out some groups for special treatment. We need a consistent approach to pensions and an independent inquiry into the long-term funding burdens that are being imposed on future taxpayers by policies that suit the short-term interests of today's policymakers.

ENDS

Dr. Ros Altmann
07799 404747

Notes for Editors:

  1. The 100% bail-out of failed bank pension schemes is also another slap in the face for the 140,000 victims whose pensions are being paid by the Financial Assistance Scheme. A 2006 report from the Parliamentary Ombudsman (the Government's own overseer) found Government guilty of misleading workers (a verdict that were upheld by the Public Administration Select Committee, High Court and Court of Appeal) and her recommendation of Government replacing their pensions in full was ignored. Instead, they had to accept sometimes substantially reduced pensions in the Financial Assistance Scheme, (at least 10% lower and sometimes over 50% lower) because taxpayers ostensibly could not afford more. The Government's argument was not true, since taxpayers are suddenly able to afford full protection when it comes to bankers' pensions.


  2. All other private sector workers have no taxpayer protection for their pensions at all. The PPF is funded entirely by other pension schemes. Workers in all companies other than banks have to accept reduced pensions - some very substantially reduced - if their company fails.


  3. The European Court of Justice ruled that Government does not have an obligation to protect pensions 100%. The fact that it has chosen to do this for banks, suggests that it must revisit pension protection for everyone else, otherwise it may face claims of discrimination in future.

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