The revelation that high-street banks have been using an estimated £15bn lying in dormant bank accounts to boost their profits paints an unedifying picture of these institutions.
Since the money quite clearly belongs to customers, why not do the decent thing and use it to reduce bank charges across the board or some other such improvement for accountholders, rather than tuck the spare funds in their back pockets?
The Government seems determined to get its grubby hands on the cash one way or another and is muttering about introducing legislation to force the banks to release the funds. It is suggesting that the money should be used for good causes.
But rather than give the money to charities, many of which spend 80p in the pound on administration rather than good works, why not use this handy £15bn to kickstart the pension protection fund? This would allow the fund to admit claims from the estimated 60,000 pension fund members who have already lost their pensions when their employer's company failed.
Good causes already benefit from National Lottery money, anyway.
There can be few more deserving causes than the 1,300 former workers of Allied Steel & Wire, many of whom were nearing retirement after a lifetime of contributions to the pension scheme and are now left with virtually nothing.
In the case of these workers, compensation would not cost a fortune. Most of these former employees were expecting a maximum pension of £13,000 after working for 30 or 40 years.
Over at Fisher Frozen Foods, employees were contributing 5 per cent of salary to the pension fund and the employer 10 per cent. When the company went into liquidation, those nearing retirement lost 90 per cent of their pension entitlement, including all their own contributions. Whichever way you look at it, this cannot be right and there could hardly be a better use for the banks' unclaimed money.
At a return of 5 per cent, the £15bn unclaimed cash from dormant accounts is generating interest of £750m a year. Shared out among the estimated 60,000 former employees of failed firms who have lost most of their pension, this would work out at compensation of £12,500 a year per person — pretty much what the Allied Steel & Wire employees were due to get.
It would not even require the banks to hand over the £15bn in unclaimed assets. They could simply release the interest to the pension protection fund, which would pay the compensation to the 60,000 workers who have lost their pensions.
Meanwhile, pension consultants, auditors, actuaries and other pension intermediaries had better warn their corporate clients that new regulations have been introduced in the Pensions Bill aimed at preventing unscrupulous employers from dumping their pension liabilities on the pension protection fund, thereby increasing the levy imposed on more honest employers.
The Government already suspects that companies are restructuring, stripping assets from the company, selling off the business to a new company and a host of other dubious practices to avoid meeting their pension obligations.
Announcing the amendments to the Pensions Bill, the Department for Work and Pensions pointed out that there are a number of ways in which companies with a group structure can ensure that, before a scheme is wound up or the sponsoring employer becomes insolvent and a section 75 debt is triggered, the company which is the legal employer is put in a position where it cannot afford to pay the debt.
Even if the rest of the group is fully solvent, the trustees cannot recover the debt from any other companies in the group and the scheme members will be left in what may be a very badly funded pension scheme. The first of the new measures gives the new pension regulator power to enforce a payment into the scheme where an employer has tried to avoid its pension obligations.
The second new provision will give the pension regulator the power to require that financial support arrangements are put in place where restructuring has left either service companies or subsidiaries with pension obligations that they cannot meet.
Whether these new measures will prevent abuse of the pension protection fund, only time will tell. The difficulty will be in spotting a company's asset-stripping before the money has disappeared. In the meantime, the Government could be doing something to alleviate the hardship of those who, through no fault of their own, find themselves in retirement with no pension because their employer and the pension fund have failed.