[A-List] British pensions crisis
Michael.Keaney at mbs.fi
Tue Mar 19 02:15:41 MST 2002
Swindle of the age
Tuesday March 19, 2002
Most successful swindles come with a bribe. Certainly the greatest swindle of modern times - the pensions racket of the late 1980s and early 1990s - could never have worked without a big bribe from the government. Soon after the big Tory victory in 1983, a gang of tightly knit Thatcherites, closely connected to the privately financed University of Buckingham and the banks, decided on a big push for private enterprise in the field of old age pensions. These men were offended by what they regarded as the "crypto-socialist" combination of state and occupational pension schemes. They campaigned for "portable pensions" - a dream world in which working people could go through life reinforced with their own personal pension bought individually with their own money to the profit of a bank or an insurance company.
The intellectual and democratic thrust behind this thinking was summed up by the minister of state for social security Tony Newton (now Lord Newton). He told the Commons: "People have more confidence in their bank managers than their MPs." Newton and his boss, Norman Fowler, now Lord Fowler, and his junior, John Major, later prime minister, rammed through the Social Security Act, under whose provision swarms of "agents" from companies like the Prudential and Legal & General scoured the country for suckers in occupational schemes who could be flogged a private scheme instead. At least a million people became victims. Almost all the schemes they were sold turned out to be worse than the schemes they left.
How did so many people fall for this hoax? One answer was the bribe offered by the government in the same act. If people switched to private pensions they could claim a 2% rebate on their national insurance contributions. This rebate would have to be invested on the stock market and would, the wretched victims were assured, provide a better pension than the state ever could. Thousands of people fell for this claptrap and claimed the rebate. The shift devastated the state earnings-related scheme (Serps) that linked pensions to earnings, payments under which were guaranteed by the state.
How has all this worked out? Well, many swindlers were eventually rumbled. They ruefully admitted what they called "mis-selling" (a beautiful synonym for theft and deceit). Many of them had to pay back at least some of the money they expropriated. Many hoped a new Labour government would revert to the party's former allegiance to state pensions, and link them to earnings. Not so. Thatcher's smashing of that link was sustained. The gap between earnings and state pensions grew. Instead of replenishing Serps, the government set up a "stakeholder" private pension scheme for the low-paid. Their choice for a company to run the scheme was the Prudential, which had "mis-sold" more private pensions than anyone else.
Now what is happening? Lots of people with pension policies with companies like the good old Pru had letters last week from the same companies urging them to contract back into Serps. The state, say the companies, (although they don't put it quite like this) is more reliable than the stock exchange. No one will detest that message more than New Labour ministers for social insecurity.
While this argument rages, Tony Blair has been in Barcelona for a European summit. To his intense irritation, he has had to put up with the same arguments that have persuaded the Pru and others to urge their clients to clamber back to the state. At the lowest possible estimate (the police one) a quarter of a million people thronged the streets of the city where socialists and anarchists (including George Orwell) once fought fascists. As in 1936, the unanimous cry of the demonstrators was "down with capitalism!" All this was studiously ignored inside the conference, but some doubts were expressed even there about what was ludicrously described as the EU's "liberalising agenda".
Blair joined a new liberalising axis called BAB, after Berlusconi, who with the help of his enormously powerful companies and former allies of Mussolini, is busy liberalising Italy, Aznar, the liberalising and very reactionary prime minister of Spain, and Blair. The argument between outright and cautious privatisers annoyingly diverted the conference from what BAB calls "progress", and very little was achieved. Indeed all the conference organisers could boast about was a commitment further to "liberalise the energy market". Blair and Co are rather short of slogans nowadays so I am happy to provide them with one: ON, ON, ON - TO ENRON!
Full article at:
Mercuria Business School
michael.keaney at mbs.fi
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