Which? is doing its best to try to persuade the regulators that there was been widespread misselling of Serps opt-outs.
They will try to use a financial argument to suggest there was misadvice and will attempt to collect a number of issues outside the control of the adviser, most of which happened after the advice was given and suggest that the projected losses are de facto evidence of misadvice.
Their argument will be that Serps, just like the company pension scheme, is beyond criticism and that the only reason for leaving it would be at the overtures of “commission-hungry salesmen”. One wonders how many of those 125,000 potential company pensioners who have lost everything due to the failure of their schemes would agree with this “four legs good, two legs bad” argument.
To boil down the discussion to that of plain financial projections misses the central issue. Why did people leave Serps and, more important, why are they doing so little to invest in their future?
The answer is that they cannot trust politicians. In 1980, the link between earnings and pensions was broken, with the effect that basic pensions are now £30 per week lower. Those contributing believed their benefits were linked to earnings not inflation. If a pension provider tried this change in policy conditions they would have found themselves in the High Court, witness Equitable Life. So what has each pensioner has lost? Around £50,000 each if they are to buy annuity to replace their loss.
Next we have the equalisation of retirement ages. Dependent on age, women will have to work up to another five years. A double whammy here, you lose up to £16,000 in benefits and you pay another five years for five years less support. The benefit to the Exchequer of this is huge.
Some female contributors, those who die between 60 and 65, will now never claim on the state for a pension.
Finally we have the outrageous £5bn a year raid on all pension and savings funds by the changes in advance corporation tax. In 1997, Gordon Brown suggested that this change would be “broadly neutral” The IFA Association challenged the Government Actuary to declare that the then current additional contribution for those in Serps opt-outs was sufficient in the light of this change, threatening to opt back in six million IFA clients.
In six weeks, the Government Actuary had raised the Government “bribe”, giving a lie to Brown’s original claims. If there is a shortfall for those of pivotal age or below, the first port of call is the Government Actuary, not the industry.
A distrustful public also recognise a clash of cultures. If the public is to save for a meaningful pension, they realise they need to contribute for a minimum of 25 years. How can consumers trust their financial future to the political class that changed financial services regulation three times in eight years?
Those who opted out of Serps did so for a variety of reasons. The biggest was, I suggest, a policy with real cash benefits that had the client’s name solidly on top of it. A real asset – not a politician’s promise.
The savings gap is not about the constant carping of regulators, the opaqueness of with-profits, the stockmarket or even the inertia bred of poor financial education. It is born of a mistrust of politicians inviting us to save ourselves into a poverty gap, as with stakeholder. It is also born of the cruel apartheid suffered by nursing home clients with small savings.
If MPs really want us all to contribute to our future, they have to offer savers castiron promises. They need to gain cross-party support for a single approach to the problem to ensure retirement ages are fixed for 50 years. That basic pension benefits will at least match inflation if not earnings. That the taxation of pension funds and their resulting benefits will remain the same and that there is a realistic contribution to the costs of all long-term care clients. It requires a long term adult partnership between the industry and politicians.
Garry Heath, Life Change