Pensions have been one of the great failures of the Blair and Brown administrations. Politicians with a five-year electoral horizon have little incentive to tackle difficult reforms, where the only hope of thanks would come 20 or 30 years hence, when today's voters come to retirement. But when New Labour was elected in 1997, with every expectation of a long stay in power, it had a chance to make positive long-term changes. The reverse has happened, and last week's budget has done nothing to change the largely dismal record.
I had hoped against hope that the leaks of Alistair Darling's plans to reduce higher-rate tax relief on pension contributions were incorrect. Not because I have any great sympathy with those earning more than £150,000 a year, who will see their pensions tax benefit scaled back, but because Darling's ill thought-out move is likely to accelerate the retirement crunch that threatens to take over when the credit crunch eventually leaves off.
Darling rightly pointed out that a quarter of all the money this country spends on pensions tax relief goes to the top 1.5% of savers. If he had really wanted to address the issue of fairness, however, he would have taken the much bolder step of restricting all tax relief on pensions to 20%, and recycling the money saved into boosting provision for those on more modest incomes.
Redistribution was not on the agenda. What he has actually done - and it bears all the hallmarks of his master, Gordon Brown - is to impose a contorted measure aimed at scoring electoral points by hitting the rich, though it will not make a jot of difference to the super-sized pension already accrued by Sir Fred Goodwin, who received an £8.3m boost to his pension fund in 2008, even as Royal Bank of Scotland was collapsing.
The unintended consequence, as we report below, is that it will sound the final death knell for the traditional company pension scheme. Even before this change, three out of four final salary schemes had closed their doors to new members and one in four of those that remain were saying they intended to pull up their drawbridges. By hurting the executives who make the decisions on whether or not to keep a fund going, the chancellor removed one of the last remaining incentives to do so: self-interest. Thanks, Darling.
The new regime will add further layers of complexity onto an already hideously complicated pensions system, and it is likely to undermine savers' and companies' confidence that there is a stable policy environment for long-term financial planning. Very high earners will be able to engineer some other way of saving tax efficiently; more modest ones will pick up the signal that the government's support for pensions is patchy at best and many will conclude there is no point saving at all.
The erosion of final salary pensions cannot be blamed entirely on the government: other factors have played a significant part. These include a decade of poor stockmarket returns, longer life spans, which make it more expensive for companies to support their former employees, and the fact that managements have spent billions - some of which could have gone into pension funds - on activities aimed at boosting the share price, and the bonus pot, such as mergers and acquisitions. Pensions neglect has left huge deficits looming over corporate Britain, threatening to dampen share valuations and jeopardise recovery. We hear a lot about the profligacy of the past decade but one rarely mentioned debt is that owed by company pension schemes to their members - an obligation too many funds will struggle to meet.
But if Labour is not the only, or even the prime, cause of the pension crunch, it has done little to help and a great deal to make it worse. There have been some improvements, such as the Pension Protection Fund, a safety net for people who lose their pension when their employer goes under, yet the government had to be forced to help hundreds of thousands of people who risked losing their retirement income when their schemes were put into wind-up before the PPF came into effect. Brown's disgraceful and heartless treatment of the Equitable Life victims continues even now, almost a decade after the collapse. After defying the verdict of the Parliamentary Ombudsman that a compensation scheme should be established, he sought to delay and minimise payments by appointing retired judge Sir John Chadwick to prepare a report on discretionary redress; I doubt Chadwick's deadline is pressing.
Back in 1997, one of Gordon Brown's first acts as chancellor was to launch a raid on tax credits on pension fund dividends, raising £5bn a year. It was not a move that impinged on most people's consciousness, though they will pay the price in retirement. Mervyn King is at it too: the Bank of England's quantitative easing (QE) programme is hitting annuity rates and causing pension fund deficits to widen. The combined deficit for companies in the FTSE 350 index has risen to £182bn from £163bn in the first quarter of this year, and QE has played a part in that.
What Brown learnt early on was that pensions were a good way of raising money without hiking headline tax rates. The government has abandoned its pledge not to increase the top rate of income tax, but is still raiding voters' pensions, in a way that would have gladdened the heart of that old rogue Robert Maxwell. Shouldn't we wise up?
Equal really does present opportunities
If the business lobby is believed, commerce in the UK is a very fragile flower. It is under assault not only from higher tax on top "talent" - and there's more than a column to be written on the misuse of that word - but also by heinous attempts to make firms fess up if they are still failing to pay female staff fairly.
As if the budget weren't bad enough, they say, compulsory gender pay audits, to embarrass firms which pay women less, are to be announced this week in the equality bill, championed by Labour deputy leader Harriet Harman.
The British Chambers of Commerce views these as a burden and a deterrent to international investors. Quite the reverse: a gender pay audit is a useful business tool, not an imposition. Any company that genuinely wanted to maximise talent would conduct a voluntary survey, to make sure it was a magnet for the most able women.
Forty years after the Equal Pay Act, female workers still suffer a 17% pay cut simply because of their gender. A new report by headhunter Heidrick & Struggles found 85% of board directors are male; the progress of senior women, it says, has been "painfully slow" and has dropped slightly in the past two years. Some of this disparity is probably down to the career choices made by women, who are more likely to opt for the "mummy track", but the gap is too wide for it all to be explained away.
The business moan-athon on this subject is fundamentally misplaced. Greater equality - not just on gender, but on race, age and social class - will help us out of the crunch.
Copyright Speakers Corner 2017