Letter to FT Supporting Protection for Pensions
by Dr. Ros Altmann
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The following exchange of letters took place in the Financial Times from 16th February 2004:
From Dr Ros Altmann.
Sir The tone of Huw Wynne-Griffith’s letter (February 16) is breathtaking. Perhaps actuaries always knew that contributions to final salary schemes were not protected, but the members certainly had no idea.
Members were told that their accrued pension rights were protected in law and that actuaries would calculate contributions, in line with the minimum funding requirement, to ensure adequate funding to pay the promised pensions. Literature from the government, the Financial Services Authority, the Occupational Pensions Regulatory Authority and everyone else contrasted the safety of final salary schemes with money purchase arrangements, where members’ pensions were not guaranteed.
Simply to say it is a tragedy that thousands of people have had their pension expectations reduced is an insult to those who have suffered in this way. This is not an example of life’s unfairness; this is more like fraud. Other victims of mis-selling receive compensation. Having contributed their money loyally for 30 or 40 years, with the promise of a secure pension and no risk warning from anyone, many now find not that they will get a reduced pension but that they will get no pension at all. Even worse, their state pension will be reduced too, so they would in fact have been better off throwing their contributions away, than putting them into their employer’s schemes. Is it any wonder that people are frightened of pensions and have lost confidence?
If we want individuals to save for their old age, we must offer them more protection. A minimum level of insurance is essential for employer schemes. Rather than criticising moves to improve safety, Mr Wynne-Griffith would do better to lament the lack of protection for money purchase pensions and encourage more security for these too. I do hope the rest of the actuarial profession is more concerned about the interests of scheme members than Mr Wynne-Griffith appears to be. After all, surely the purpose of pension funds is to pay pensions.
Ros Altmann, Governor, London School of Economics, London N3 3EE
From Mr H. R. Wynne-Griffith.
Once again the government, in seeking to find a quick answer to difficult pensions issues, has come up with the wrong one with its proposed new Pension Protection Fund.
There is risk in all that we do and that applies to pension schemes just as much as to any other aspect of our lives. It is wrong of the government to seek to remove all risk from the shoulders of employees in final salary pension schemes and yet leave the very same risk (although manifested in a different way) to be borne by those employees who are in money purchase pension schemes (and they will soon form the majority).
The government wants to shift to employers the full risk for employees in final salary schemes while offering no protection whatsoever to employees in money purchase schemes. Why this imbalance? What have those employees done wrong to have been so cruelly ignored? Surely all employees should bear some risk – regardless of the kind of scheme they are in? The proposed Pension Protection Fund should be redesigned.
It is, of course, a tragedy that up to 30,000 people have had their pension expectations reduced but the greater catastrophe is that bad pensions legislation (from all recent governments) is now threatening to leave millions with lower or no pensions in future (except for MPs and state employees, naturally).
Knee-jerk legislation in reaction to examples of life’s unfairness always back fires. This happened with the post-Maxwell legislation and so it will with the Pensions Protection Fund. Will politicians never learn?
H. R. Wynne-Griffith