Ah, the fickle nature of the British press. In November 2003, Gordon Brown (along with Jude Law, Johnny Depp, George Clooney, Jarvis Cocker, Jeremy Paxman, Jonny Wilkinson, Russell Crowe, and the Dalai Lama!) was voted one of Britain’s top “sex gods” in a magazine survey. David Beckham did not poll a single vote.
Currently we are confronted with a less flattering image of the Chancellor in the press. Countless reports have appeared, portraying a pensions system in crisis, with the Chancellor of the Exchequer Gordon Brown cast as the arch villain, robbing scheme members of their pensions.
Public confidence in the pension system has been shaken by a series of negative stories dating back to the pension transfer scandal in the mid 90’s.
Whilst mistakes have undoubtedly been made, the unrelenting onslaught of negative press needs to be put into perspective. Public confidence in pensions needs to be restored if future generations are not to be considerably less well off in retirement than current generations.
People have to understand a good pension, and hence the retirement lifestyle most of us now crave, comes at a price. In our society were instant gratification seems to be considered a basic human right, the unpalatable message is that you need to deny yourself some conspicuous consumption now and save a sensible amount of money, now.
Saving for retirement should be a three way partnership between the state, the employer and this individual, but ultimate responsibility has to rest with the individual.
It should be remembered that private sector funded pension schemes remain entirely voluntary in the UK. Companies established pension schemes with the very best of intentions: to benefit employees in their retirement. But the Scheme they established in the 1970’s is a very different beast today and has changed in many ways that were not foreseeable back then.
Unfortunately, today many pension schemes have large deficits and the ongoing cost involved in companies continuing to run them has risen significantly. It is because the cost of companies providing salary related benefits to members is so uncertain that many of the well-documented problems with pensions have arisen.
With media reports of billions of pounds having vanished from pension schemes without a trace, as if someone had simply run off with them, there is a pressing need to explain the various reasons why a scheme may be under funded. Some of these reasons include: volatile stock markets; legislative changes, which have seen dividends taxed and pensioners receiving an inflation linked payments; people living longer; changes in interest rates and the fact that the historic funding basis on which many schemes were based has since been shown to be unrealistic which meant that many employers paid inadequate contributions.
So who is to blame for the problems besetting the pensions industry? The pensioners themselves for living longer? Of course not! Are actuaries to blame for getting their sums wrong or are companies at fault for not paying enough into their schemes?
Whilst it is the business of actuaries to make predictions, it is worth remembering that they make no claims to be capable of seeing into the future. Given the lack of a crystal ball, actuaries instead calculate best estimates based on information available at the time. Fortunately for pensioners, though arguably unfortunately for actuaries, the significant rise in life expectancy seen over recent years had not been widely predicted as it had not been apparent from the available data a decade ago.
Much of the negative publicity surrounding the pensions industry points the finger of blame directly at Gordon Brown. Is this justified? Certainly, it has been estimated that his 1997 tax raid on pensions, which abolished advanced corporation tax relief on share dividends, has cost pension schemes £5 billion a year in the following decade.
And whilst sticking to its claim that Britain simply cannot afford an increase in the state pension, the Government has stubbornly refused to accept any responsibility for its role in the pensions crisis, even though the High Court Judicial Review ruled recently that the Government’s rejection of the parliamentary ombudsman’s report was unlawful.
Although the Government still refuses to compensate those members who lost their pensions when their schemes wound up, it has introduced the Financial Assistance Scheme, though the success of this has yet to be proven and, indeed, has been dismissed by some commentators as little more than ‘political spin’.
So how else are the pension problems being tackled? Well, legislation has been introduced to encourage companies to pay more into their pension schemes and to seek to secure benefits through the introduction of scheme-specific investment strategies, whilst trustees are now asked to consider themselves as ‘unsecured creditors’.
Furthermore, many companies have now closed their final salary pension schemes to new members or are stopping the accrual of benefits. Some have increased member contributions or changed the basis on which benefits build up. Others are offering transfer value top-ups and cash inducements to members in an attempt to encourage them to leave schemes and therefore reduce scheme liabilities. Some industry commentators and the Pension Regulator have expressed concern over this.
Many companies have opted to change the design of their pension scheme from final salary to money purchase as they offer a lower costs option and a shift in the investment risk from the company to the member, which can be an attractive option for those companies unable or unwilling to continue to fund their final salary schemes.
So where does that leave us? Well, given the many problems that continue to face the pension industry, member communication must be a top priority. The problems are complicated and the solutions far from simple and people need to be informed as well as engaged in a way which commits them to participate. There is some encouraging evidence that the pensions industry is starting to deal with these problems head on and the Government has gone some way to assist with the establishment of the PPF and the FAS.
Putting aside the vexed question of whether or not members should be compensated, the continued negative publicity is causing a major decline in public confidence about pensions at the very time when we need to encourage people to provide for their retirement, especially as they are living longer and the state is unlikely to be able to provide the level of support likely to be need.
So has the pension system failed? We would argue that it has actually been pretty successful based on the number of people receiving pensions from their employers pension scheme. The pensions industry and the Government have responded to most problems faced by the industry by building better safeguards and compensating members who have been adversely affected. Okay its not been perfect and compensation may fall short of 100% of peoples expectations but overall pension savers in the UK are afforded a high degree of protection. Companies have stepped up to the plate and pumped massive sums of money into their schemes to improve the security of members pensions. Individuals now need to take responsibility for their retirement saving, but the framework is there and will continue to deliver.
So in conclusion its probably unfair to paint Gordon Brown as a robber baron wholly responsible for the problems of the pensions industry, based on the available evidence. Neither of us is qualified to comment on the sex god thing.