Nic Cicutti: Thatcher's big personal pensions failure
I don’t generally like Members of Parliament. Greedy, mendacious and self-aggrandising are among the kinder terms to describe their personalities. However, I do have a soft spot for veteran Newport West MP Paul Flynn.
Flynn is one of that rare breed of politicians who says what he believes in. As a result, he has always been denied preferment and will stay on the backbenches for the remainder of his Parliamentary career. Thankfully, he has grabbed at the opportunity this offers and speaks out regularly, usually with a great sense of humour.
On the day of the bogus and unwarranted Parliamentary “debate” held to discuss the death of Margaret Thatcher, Flynn pointed out that he once “unwisely” put down a written question, asking her to list the failures of her premiership. “The answer was disappointingly brief”, he told MPs last week.
“Another MP tabled a question asking her to list the successes of her premiership. The answer cost £4,500 and filled 23 columns of Hansard. Modesty was never her prime virtue.”
Possibly more significantly from the perspective of Money Marketing readers, it was also Flynn who - along with a number of opposition MPs - warned in the late 1980s that plans to introduce personal pensions in the 1986 Financial Services Act, without protecting occupational scheme members at the same time, was a recipe for disaster.
For those with short memories, it is important to understand how bitter the debate was at the time. Back in 1983, after the Conservative general election victory, Norman Fowler, then Secretary of State for Social Services, set up a committee to reform pensions, which included Sir Mark Weinberg, of Abbey Life, Hambro and SJP fame.
Unsurprisingly, the committee found itself supporting the idea, promoted by the free-market Centre for Policy Studies think-tank, of a new “portable pension” to replace old-style occupational schemes.
The government threw its weight behind these proposals, notwithstanding warnings from the Opposition that there would be “over-selling” and that many would end up worse off.
Michael Meacher, Labour’s spokesman on social security matters at the time, told me: “Despite the fact that we were raising a whole series of valid points, ones on which we have subsequently been vindicated… there was a blind refusal even to acknowledge the merit of any facts that conflicted with [theirs].”
Not only, but in an attempt to weaken the state’s own provision of a pensions safety net, the government dangled the carrot of an additional tax rebate as an incentive to encourage contracting out of Serps and into private schemes.
The result was predictable: as FT journalist Norma Cohen wrote years later, by the end of the 1988-89 tax year - the first year in which they were available - more than one million private pensions had been sold, twice the government projection. By the end of the following tax year they totalled 3.9 million, rising to 4.3 million at the end of the 1991 tax year.
In July 1992, a gathering of ministers and civil servants at Chevening was told that while “personal pensions have been a tremendous success… there are a few time bombs ticking away”. Such as a report by the National Audit Office which had found that while £9bn was paid in rebates from 1988 to 1993 to people who had agreed to contract out, the Serps bill had only been reduced by £3.1bn.
Meanwhile, all of Meacher’s predictions – and then some – about the likelihood of a massive misselling scandal had come true.
Which brings me back to Paul Flynn. Back in March 1990, he asked the then Prime Minister Margaret Thatcher a question: “Will [she] join Lautro and independent consultants in denouncing the wickedly dishonest advertising and overselling of personal pensions?
“Already, over one million people are likely to be worse off… Will the Prime Minister guarantee that when the time is right for those cheated millions… there will be a full- blooded Government advertising campaign to inform them of the truth?”
Thatcher replied: “People are perfectly free to take out personal pensions… Many people have exercised their choice. I recognise that choice is anathema to socialism, which is why socialism will be rejected in this part of Europe as it has been in eastern Europe.” Even on a subject as sensitive as this, Thatcher could only respond in ideologically confrontational terms.
As we now know, Flynn and Meacher were right and Thatcher was grotesquely wrong. More than £11bn was spent putting right the misselling scandal and even now there are hundreds of thousands whose retirement prospects have been permanently scarred as a result.
I have chosen to focus on pensions. We could also discuss the merits of the poll tax, of Mrs Thatcher’s use of incapacity benefits to massage down unemployment figures, of the virtual destruction of publicly-owned housing stock through Right to Buy or the blind belief in the benefits of financial de-regulation that she had and which she was happy to ram down the throats of people like Flynn.
My guess is none of these found themselves on the catalogue of “mistakes” Flynn asked Thatcher to outline. But at a time when hagiographers are rewriting the history of that period and Thatcher’s role in it, we should remember there is another, equally compelling version that will not go away.
Nic Cicutti can be contacted at email@example.com