books economics

The Great Pensions Robbery, by Alex Brummer

Talk to my Dad about New Labour, and he’ll reply with two questions: ‘where are the weapons of mass destruction?’ and ‘what happenened to the pensions?’ The war I know about, but I wasn’t paying attention to the pensions debacle. Walking past a new book on the subject in the library, I thought it was perhaps time I educated myself. It was a worthy intention, and Brummer’s book even one claims to explore “one of the biggest scandals of our time”, so it must be important.

Pensions have a long and mostly dignified history in Britain, going right back to medieval times.The guilds ran them for their craftsmen, clergymen received a stipend after they retired, and the Navy had the Chatham Chest, a pension fund for wounded sailors. After a war with Spain, there were so many wounded sailors that it had to be bailed out by the government in 1667 – nothing new about saving the banks. Private pensions existed in some form for servants of wealthy families, and companies began to run them for retiring employees in the 1800s. The stationery company WH Smith was among the first, and the Reuters news corporation.

These were important measures. Bearing in mind that Victorian Britain was essentially a sweatshop economy. Manual labourers did not earn enough to save for retirement, although most didn’t live that long anyway. Those that did would have to depend on family, or end up in the poorhouse, working for a roof over their heads.

The government pensions began in 1909 with the Old Age Pensions act. It was the brain child of Lloyd George, the last Liberal prime minister, after a long campaign by the Christian Socialist movement and the poverty campaigner Charles Booth. It was not a popular measure with the wealthy, who didn’t need it, and they resented the taxation. However, it became the accepted understanding that since you had given your working life to contributing to the national wealth, the government would reward that by ensuring you were taken care of in old age.

Once the government had taken on that responsibility, promoting private pensions was an obvious way to save money. Every private pensioner was one less pension for the government to provide, and in 1921 the Finance Act brought in a tax break for company pension funds. It was an unusually win-win political breakthrough – companies welcomed the tax credits and earned the loyalty of their employees, the occupational pensions grew and took the pressure off government, and that in turn lowered the tax burden.

This is the system that existed, in various forms, until 1997. Tony Blair was set to sweep New Labour into government, they needed new sources of income to fund new ideas, but they had promised not to raise any new taxes. Gordon Brown, as Shadow Chancellor, spotted the pension funds as a potential way out. Corporate pension funds received a tax credit that could be re-invested into the fund. Since the economy was going well, pension funds were often in surplus and businesses were taking payment holidays. It seemed safe to tap into that bounty, and the tax break was scrapped in Brown’s first budget.

Unfortunately, the popping of the dot-com bubble followed fairly swiftly afterwards, the pension funds lost a fortune, and within a couple of years pension schemes were in trouble. Two thirds of final salary schemes closed to new members, and when the government brought in new stakeholder pensions to shore up the system, they were mis-sold and millions of people lost their savings.

I’ll be honest, the earlier bits of the book on the history of pensions were more engaging. Once it gets into squabbling between various government departments, and this report and that recommendation, I kind of lost it a little – although I can well understand why nobody has managed to fix the pensions yet. The lesson of the book is that you don’t sell out something that’s working well for short political gain. Gordon Brown was advised not to touch pension tax credits by four independent investigations, all of which he ignored. It was killing the golden goose, basically. As a consequence, the security of a comfortable retirement is now a thing of the past.

As for the book itself, it’s a competent retelling of a complex subject, and Brummer covered many of the events as a journalist. It’s detailed, but readable. It’s also angry.  Brummer makes no effort to disguise his contempt for Gordon Brown, who ‘blunders’ and ‘dithers’ and causes ‘shambles’ and general ‘havoc’ wherever he goes. Brown’s decision was a terrible one, but it’s still a little tiresome. I’d like to have read more on the broader issues around pensions, particularly the inequality of assets. And the last chapter shows how the pensions sector is changing, with pension funds being sold off to insurance companies. This is a major development in the history of pensions, with companies washing their hands of them and giving someone else liability, but the book gives little indication of whether this is a good or a bad idea, or what the consequences might be.

In short, if you’ve got an interest in pensions or a hatred for Gordon Brown, you might enjoy The Great Pensions Robbery. But even having read the book, I still don’t entirely understand pensions.

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