Tuesday, 8 December 2009

Yes and no

I generally like Paul Ormerod's stuff, but I'm not overly impressed by this para in his Comment is Free piece today:
And this is to say nothing of the massive social injustice which has been created by the huge gulf between public and private sector pension provisions. From an egalitarian perspective, this is a scandal even bigger than the bankers' bonuses. In the 1997 budget, Brown wrecked private pensions. Gold-plated public sector ones remain unreconstructed.
Yes, I'd agree that the disparity is a scandal, and actually it is a bigger issue than bankers' bonuses. The private sector has decided that it cannot handle the costs and, more importantly in my view, risks of defined benefit pension provision. Employers have massively reduced their commitments to pensions. This is something that does need to be addressed, and quite quickly, or a lot of people are going to be retiring on much less than their parents.

But to blame the current government for this state of affairs is way off target. The single biggest contributor to the collapse in DB pension provision is improved life expectancy, as is widely accepted. Stockmarket falls and new accounting standards brought home to companies what risks they were running. In all of this the level of dividend taxation is not a big factor. That isn't to say it didn't hurt, but to claim the changes in the 1997 Budget (which only took to completion a move initiated previously by the Tories) 'wrecked' private pensions is off the mark. The first big wave of DB closures started after the dot-com bubble burst - ie post-2000. If dividend taxation was the key factor why didn't the effect kick in earlier?

And it's incorrect to claim that 'gold-plated' public sector pensions have not been reformed. You might think that reform has not gone far enough, but to suggest that they haven't been touched is simply... err... wrong.

The killer (no pun intended) is life expectancy. Therefore if Labour seriously damaged the private sector pension system it did it in 1948 by establishing the NHS, not by reducing dividend income in 1997. It's just that we only really started grappling with the implications much later. And personally I don't think that the solution offered by the private sector - significantly reduce pensions - is the right one, or would be acceptable to the public if properly understood.

Disappointing stuff I'm afraid.

1 comment:

Andrew Curry said...

And of someone of the wrong age here - the rot actually set in in the 1980s with the privatisation (financialisation, some would say) of the pension sector. Yes, it was inevitable that there would need to be some changes as company structures changed, but the way the Conservatives introduced it was a bonanza for the financial sector - and a curse for people seeking reasonable places to place their pensions savings.