Thursday, 25 June 2009

Telegraph prints lies about pensions

Todays' editorial in the Telegraph about pensions is one of the most inaccurate pieces of writing on this subject that I think I have ever seen in a national newspaper. It's simply a rehash of ill-informed prejudices about the UK's pension system and it has so many things wrong with it that it is hard to know where to start.

When Labour took power a dozen years ago, private pensions in this country were the envy of Europe.

No they weren't, for numerous reasons. For one the replacement rate (your post-retirement income compared to your pre-retirement income) was significantly higher in many other countries, in part because they have far more generous PAYG schemes, and because the state system in the UK was vandalised by the Tories. Secondly the private pensions system here has always had huge gaps compared to other similar countries, with approx half the workforce only in an occupational scheme. This stuff can be found in the Pensions Commission report.

Then there were employer wheezes like clawback etc.

Finally many other European countries thought that funded pensions were too risky, as they could be damaged by volatile financial markets. The simpletons, eh?

Why the collapse? A primary reason is the decision of Gordon Brown, as Chancellor, to use his first Budget in 1997 to scrap the tax relief on pension fund dividends – a scheme dreamed up, incidentally, by his right-hand man, the Schools Secretary Ed Balls.
Utter bollox. The primary drivers are improved life expectancy, poor investment returns and the fact that companies have to disclose deficits on their balance sheets. The Tories' former pensions adviser Stephen Yeo has said as much.

It has been estimated that this spiteful measure has cost private pension schemes as much as £175 billion in the intervening years...

Estimated by who? I have never seen this figure before. The most commonly quoted figure is £5bn a year, which would add up to £60bn by now. But as I have blogged several times previously independent analysis by the Pension Policy Institute puts a much lower figure on it. I'm not saying it didn't hurt, but to say it was a 'primary reason' is hugely misleading.

It ushered in the era of enormous fund deficits, the demise of most final salary schemes and depleted pension pots, leaving millions worse off than they expected and forcing many to postpone retirement.
Note 'ushered in' the implcation again being that the ACT cut 'caused' the collapse of final salary schemes. Funny thing is, the tax change happened in 1997, but the wave of scheme closures only started after the post-2000 market slump.

Most state workers enjoy final salary schemes and their average pension pot is more than £427,000, compared to just £25,000 in the private sector.
This is the worst thing in the whole stinking dunghill. This is a comparison between the transfer value of a typical public sector DB entitlement and what looks like a low estimate of the average DC pension pot. They are not the same thing, nor are they directly comparable. I have been in both DB and DC schemes in my working life. I have about six years' DB entitlement, the rest DC. So just quoting my DC entitlement doesn't give you any idea of what retirement income I will be heading for.

Many other private sector workers will be in the same boat, having been in a DB scheme and built up entitlement, but many now in a DC scheme if they have moved job recently. (though many private sector workers are still accruing benefits in DB schemes because these schemes were closed to new members after they had joined). And in any case inevitably DC pots will be on average smaller because most DC schemes have only been set up in the past few years.

The Telegraph's comparison is simply bogus. It has either been written by someone who knows very little about pensions, or it is deliberately dishonest.

Its one attempt at reform – the modest suggestion that existing state employees retire at the same age as the rest of us – was meekly abandoned by the then trade secretary Alan Johnson at the first squeak of resistance from the unions.
Again, very misleading. Who are 'the rest of us' and when do we retire? Many private schemes had a normal retirement age of 60 in the past (the same as most public sector schemes), but have recently increased it for new starters (same as the public sector). The LGPS incidentally has had an NRA of 65 for years. But in any case that is just the date your pension gets paid at, not the age at which you can retire. You can retire when you like if you can afford to, and from memory there isn't a big difference between public and private sectors. I think on average people empoloyed by bigger companies retire earlier than the public sector average, but I'd need to check.

There is one section in this stream of rubbish that is true -

This craven behaviour means an incoming Conservative government will have to pick up the pieces. David Cameron said this year that he is ready to meet the challenge.

Make no mistake. If you are a public sector worker the Tories are going to come for your pension - they have said so numerous times. The same people who broke the earnings link, gutted SERPS, and encouraged people to leave good occupational schemes to join personal pensions now want to launch an ideological assault on the pensions of people employed by the state. They haven't changed - they are the same vindicative gits they always have been. Don't say you weren't warned.

PS. I have never been a public sector employee, so I have no vested interest in this.