All politicians know (and often quote) Harold Macmillan’s response when asked what a prime minister most feared: “Events, dear boy, events.”
It is not absolutely clear when and to whom Macmillan actually said it. Some say it was made to President Kennedy; others to a journalist after dinner. Former chancellor Denis Healey claimed it referred to foreign policy, while Macmillan’s official biographer thought it may have been a response to the Profumo affair.
Whatever the historical context, the point he was making is very true. Any policy or strategy can be seriously damaged and/or knocked off course by unforeseen events often completely outside your control. It is certainly the case that events and the Government’s response (or lack of) to them have most affected pensions policy over the last 20 years.
I mention 20 years because that was how long ago I first started working in pensions. Joining what is now The Pensions Advisory Service, I witnessed first-hand many of the events that led to so many policy changes, U-turns and the like over the succeeding period.
Most of the pensions legislation governments produce in response to events tends to be more backward looking than forward.
In April 1997, we had the arrival of some apparently very significant new laws, designed to improve member protection and block off the possibility of another Maxwell case (the crooked tycoon who had jumped off his boat some six years earlier having stolen millions of pounds from the Mirror Group pension funds).
In doing that, however, a whole new set of difficulties for pension schemes arose for example, from a minimum funding requirement which on a wind-up turned into a maximum funding requirement and eventually had to be scrapped.
“Most of the pensions legislation governments produce in response to events tends to be more backward looking than forward.”
Twenty years on there are also unintended consequences still emanating from the “section 75” debt regulations for employers (for example, plumbers) who form part of an industry-wide scheme. And, of course, the wider problem of defined benefit deficits and how best to deal with them remains largely unresolved.
What that particular piece of legislation also failed to anticipate were the events that were shortly to gather pace around companies with underfunded pension schemes becoming insolvent and causing their workers to lose their jobs and their pensions as well. It was not until 2005 – and more legislation – that we got the Pension Protection Fund and the Financial Assistance Scheme.
To a large extent, this trend has carried on right through to the present day. For example, we had a major revamp of the pension tax rules in 2006: so-called pensions simplification, which was neither simple nor long-lasting. I have lost count of the number of further tax changes brought in by subsequent legislation, with the likelihood of yet more to come.
The Government has also been rather slow off the mark in recognising longer life expectancy and the impact this will have on retirement and care costs. State pension ages have risen but in a seemingly incoherent way; something the forthcoming Cridland Review will hopefully better address.
The new state pension offers some hope as to a simpler, more easily understood system (eventually) but it will clearly not be the more generous-to-all solution that had originally been envisaged.
That said, the one really bright spot over the whole of this period has been the arrival of automatic enrolment and the success it has enjoyed to date in terms of the numbers now enrolled. It would be a great pity if external events such as Brexit or a major downturn in the economy were to spoil this in due course.
In looking back over the last 20 years, it has been relatively easy to pick out some of the main flaws and the opportunities that have been missed. But then, as they say, hindsight is a wonderful thing.
Perhaps more important to ask is: what about the future? Is there anything we should fear? The answer to that is a bit more difficult but on the same lines: Events, dear boy, events. What else could possibly go wrong?
Malcolm McLean is senior consultant at Barnett Waddingham