This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.
X

Nic Cicutti: Thatcher's big personal pensions failure

  • Print
  • Comments (40)

Nic-Cicutti-MM-blog.jpg

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 nic@inspiredmoney.co.uk

  • Print
  • Comments (40)

Daily Email Updates
If you enjoyed this article, sign up to receive the latest news and analysis from Money Marketing.

The Money Marketing CPD Centre
Build your annual CPD - you can log and plan your CPD hours for free with The Money Marketing CPD Centre.

Taxbriefs Advantage
Advantage is a digital reference source giving unbiased, independent, answers to your technical queries. Subscribe to Taxbriefs Advantage.

Readers' comments (40)

  • If it had been up to the Liebor party in the 1980's I think things would have been VERY different. i.e. I don't think the Soviet Union would have collapsed and Nic probably would not be able to write what he has here, but then again he probably would have been the Press commissar.
    As Neil Kinnock said, M Thatcher and Arthur Scargill deserved one another. Without either one of them the world would be a very different place. Whether it would be better or worse is immaterial. We are where we are.

    Unsuitable or offensive? Report this comment

  • Well done Nic! An intelligently written and particularly brave article, considering most of your readership are Thatcher loving Southerners who in the main are entirely ignorant of the destruction she caused to anywhere north of Watford. Thatcher famously said "There is no such things as Society" and the 'me, myself, I' culture we now live in is its direct descendent.

    Unsuitable or offensive? Report this comment

  • I hate to say this, but I must.....
    I , yes me- Hugh Jarse, AGREE with Nic C.

    I need to go and lie down now......

    Unsuitable or offensive? Report this comment

  • It didn't take long for the shop steward to dust of the donkey jacket and return to good old picket lines of yore.

    Unsuitable or offensive? Report this comment

  • Thatcher did not say 'there's no such thing as society' - famously or not. This is a mis-quote that has gained traction.

    Something else that has been wrongly reported is that her funeral cost £10m. It cost £1m - the remaining £9m was Blair's appearance fee!

    Unsuitable or offensive? Report this comment

  • Yep nice left wing bias article that the BBC would be proud of.

    As we all know if Maggie hadn't been elected we would still have ship yards on the Tyne and Clyde, hundreds of pits would still be open, British Leyland would now be a world beating car manufacturer, ships would still be unloaded by salt of the earth dockers rather than via modern container depots, Newspapers would still be printed using 100 year presses in Fleet street, and Nationalised trains would be providing a a world class,

    Yep had Maggie lost the election the North (above Watford) would now be a heavy industry coal powered world beating manufacturing powerhouse

    and of course any one reading this article would no doubt believe that if Maggie hadn't been elected we would all be retiring on fantastic state funded pensions

    Unsuitable or offensive? Report this comment

  • Half a job Cicutti, they call him.

    Talk to the Welsh Steel workers about safe final salary schemes, talk to the civil servants about the same.

    What Thatcher's "ideology" meant was simple and that was take responsibility for yourself.

    Share ownership is a risk and so is property ownership. Final Salary schemes are a risk now days and so are personal pensions.

    But at least they are your risk and you in effect have the ultimate control in what you do with them.

    You wont hear many complaints from people who bought their council houses in London for a song and sold them years later for 10 x plus the value they bought them for and retired very happily. Thank you very much Margaret rest in peace content in the knowledge that you gave this country and the people in it the chance to take responsibility and some control for and of their own lives rather than remain under the yoke of the unions, sponging socialists and small minded government officials.

    The people who did not embrace the ideology of responsibility for self then, now drowned by inertia are still moaning about it.

    Unsuitable or offensive? Report this comment

  • Everyone that talks about council homes being sold - you do realise it was the taxpayer that subsidised this, yes? We all chipped in to help people buy their homes and now we have a housing crisis. Yay!

    Anon @ 5.03. You are just as unreasonable as the posts you attempt to dismiss. Few would say that things wouldn't have changed. It was the uncaring, dispassionate 'let market forces have their way' attitude that galls many of us. Managed decline was what was needed.

    And this point on the earlier page about Gordon Brown's tax raid on pensions. People do understand it was a dividend tax credit he rescinded? What does that reduce annual growth by? 0.5%?

    Unsuitable or offensive? Report this comment

  • @Tim Jeffs

    Yes she did. It was in her speech at the Party Conference 9th October 1987.

    Unsuitable or offensive? Report this comment

  • RIP Maggie
    Love ya

    Unsuitable or offensive? Report this comment

View results 10 per page | 20 per page | 50 per page

Have your sayEdit my profile/screen name

You must sign in to make a comment

Fund Data

Editor's Pick



Poll

Do you think other insurers will follow Legal & General and quit the ABI?

Job of the week

Latest jobs

View all jobs

Most recent comments

View more comments