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The figure dwarfs previous estimates, which put the damage to pension schemes, caused by the Chancellor’s decision to remove advanced corporation tax relief from equity dividends in 1997, at 40bn-50bn.

Terry Arthur, a fellow of the Institute of Actuaries and founder of the Pensions Management Institute, says previous estimates have merely calculated the annual loss to pensions funds – estimated at between 3bn and 5bn – in the past nine years and then compounded the interest. But his figures have compounded both past and future losses. He says the scrapping of the 20 per cent ACT relief had an irrevocable one-off impact on shares held in pension funds – valued at around 500bn in 1997.

This is because the expected dividend payments by a company are a function of its valuation, and so, its share price. By removing ACT relief, the Chancellor therefore removed 20 per cent of the value of dividends.

Arthur says even using the most conservative assumptions, based on 3bn lost per year, the loss, when summed up to perpetuity, still exceeds 100bn.

He is convinced that the figure is nearer to 200bn, adding: “It would be very hard to justify a current present value of less than 100bn, and 150bn may be a conservative estimate.”

To put this into perspective, the most conservative estimate is more than twice the combined pensions deficits of the UK’s 350 biggest companies.

But Arthur is not dealing with an exact science and there are various different schools of actuarial thought on his findings. President of the Faculty of Actuaries Stewart Ritchie argues that this is one of the “joys of the actuarial profession”.

He views the figures with a healthy dose of cynicism and argues that calculations about future amounts depend on the assumptions made. He points out that small variations in these assumptions can make a large difference in the conclusions reached.

But Watson Wyatt senior consultant Stephen Yeo, while believing that figures of 150-200m are exaggerated, says losses of 100bn are feasible, adding that he has come up with a similar figure.

Tory Shadow Pensions Minister Nigel Waterson and Standard Life marketing technical manager Andy Tully argue that it will take a lot of saving under the new Personal Accounts system to fill this black hole – whether it be 100bn or 200bn.

Tully says that if five million people earning the national average wage of 25,000 save through NPSS, even assuming they net 8 per cent contributions, the annual saving adds up to just 8bn. So it could take 15-20 years of saving through NPSS to plug the gap created by the Chancellor. Assuming a 6 per cent growth rate, this could reduce the figure to 10-15 years but Tully points out that the effect of the ACT removal will also keep growing.

Despite the genuine concerns raised by Arthur’s calculations, the Treasury has dismissed the research and refuses to engage in the debate about whether the figures add up. It merely contends that other changes such as corporation tax cuts have offset any losses to pension funds.

It says: “This methodology fails to recognise that by establishing a stable macro-economic framework and cutting corporation tax alongside reforms to remove the distortionary impact of dividend tax credits, the Government has created better conditions for investment and growth, and hence greater opportunities for pension funds.

“As a result, the UK economy has grown by 25 per cent since 1997 compared with only 16 per cent in the previous nine years. All investors, including pension funds, should benefit from improved long-term investment and company performance.”

But Altmann and fellow commentators say this argument does not hold water. Altmann says: “The argument that the Government cut corporation tax, and so everything is fine, is flawed. It was taking money out of one pot and putting it back in another. Money was taken out of existing funds on existing assets. These pensioners were relying on income that they will never gain.”

Yeo agrees that the Government’s defence is flawed because while shareholders have benefited from cuts to corporation tax, the benefits have been felt by all shareholders, not just pension funds.

He adds: “It is telling that the Treasury does not publish its figures for investments that have collapsed over the same period.”

Informed Choice managing director Nick Bamford says: “The environmental change the Government is talking about does not directly affect pensions funds. It has been diluted across the market place. The Government has not refunded 100bn.

“Gordon Brown has robbed more out of pensions funds than Robert Maxwell could ever have dreamed of. It is incredibly stupid to claim that he has not damaged pensions – he has damaged pensions beyond repair.”

Whether Bamford is right, is a matter for debate but there does appear to be a growing consensus that Brown’s record on pensions is contemptible.

The revelations about Brown’s contribution to the pension crisis threaten to further undermine his self-styled reputation for economic prudence and provide further ammunition to those who question his suitability for the highest office.

Perhaps it is no wonder that the Treasury is fighting the Information Commissioner’s decision to force it to reveal forecasts it received on the long-term impact on pensions caused by the removal of ACT relief before Brown made the crucial decision.


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