The Government’s bail-out of Northern Rock, providing a 100 per cent money-back guarantee to all its depositors, should be compared with the treatment of 125,000 savers in final-salary pension schemes who were encouraged to contribute, could not have any other pension and were assured by the Government that they were fully protected, without any risk warning.
For 10 years, they have been battling this Government over their lost savings and have consistently been told that taxpayers cannot be expected to rescue them.
Yet Northern Rock savers were not told by the Government that their money was completely safe and protected by law. Northern Rock savers knew they were only covered by an insurance scheme that protected them up to about £35,000 each. They had a choice where to put their money. Many chose Northern Rock because it offered higher interest rates, a reflection of the higher risks entailed in its business model. Yet they were protected at taxpayers’ expense.
Members of final-salary schemes which failed after 1997 and before the Pension Protection Fund started had no idea their retirement was at risk. They believed Government assurances that their pensions were “guaranteed”.
The Government – and the Chancellor himself – publicly announced their pensions were safe and protected by law, even after Alistair Darling was warned by the actuarial profession in 1999 that members had no idea they were not really protected and should be told this.
The unfairness of Gordon Brown’s Northern Rock rescue, after abandoning pensioners who had trusted his Government’s assurances of safety, is disgraceful.
Earlier this year, a cross-party group of MPs proposed a lifeboat scheme for victims. This would have ensured pensions were topped up to the same level as the PPF (not even 100 per cent of their pension). It was passed in the Lords by a huge majority but, despite a rebellion by some brave Labour backbenchers, the Commons defeated it and then, rather than going back to the Lords, Brown used the 1911 Parliament Act to prevent further votes.
There are pensioners now, waiting for the Financial Assistance Scheme to pay out, who have had to sell their homes or battle through cancer or heart disease.
The FAS was supposed to help but its terms are leaving thousands without the provision they paid for. FAS rules mean most pensioners will get only about 65 per cent of what they expected – some less than half that.
Providing blanket 100 per cent underwriting to Northern Rock and any other financial institution cannot be squared with the treatment of wind-up victims.
The Parliamentary Ombudsman said the Government should pay 100 per cent compensation plus damages for stress and distress caused but ministers refused.
They have also ignored public administration select committee, European Court of Justice and High Court Judicial Review verdicts that the Government should have protected these people’s pensions.
Since 2004, the FAS has paid out about £4m to around one in five of the victims already over 65, while costing nearly £10m in administration.
This one issue is consistently cited in surveys as a prime reason for the loss of public confidence in the Government’s word on financial issues.
In the past 10 years, confidence in long-term savings has been destroyed. Fewer people are saving for their retirement precisely because of what they have seen happen to their friends and relatives under Labour.
Bailing out Northern Rock has merely compounded their suffering. The longer the Government refuses to treat these people fairly, the longer it will take to recover the culture of self-reliance.
Ros Altmann is an independent pension consultant