View more on these topics

Verity&#39s view

Should Andrew Smith be praised or attacked for the dramatic last-minute amendments to the Pensions Bill? This is not, of course, a question for a journalist who is obliged to be politically neutral to decide. So I will simply put the views of his backers and his critics and readers can then make up their minds.

The most prominent of those amendments is the decision to extend help to those who have already lost some or all of their occupational pension. In the view of those who campaigned for just that, this is an amazing breakthrough.

That has to be tempered by valid criticism such as that from David Willetts, the Tory pensions spokesman. The Government is only pledging£400m over 20 years – £20m a year. Not much compared with the £76m which Ros Altman has estimated it will cost and far less than it will cost to restore the lost pensions in full – or even to the level of 90 per cent.

Evidently, the Treasury was only willing to go so far in accommodating this cause. Tony Blair had made clear he was in favour of compensation, yet the principle of retrospective compensation is a frightening one to concede for the Treasury and Andrew Smith&#39s supporters will regard it as a massive political achievement on his part that he was able to get that principle through in any shape or form.

It is not clear yet but this may have to come out of the existing DWP budget, with no more Treasury money provided. There is talk of finding extra money from industry but as yet it remains poorly defined.

But there are already further objections. Are they valid?

The biggest complaint has been that because the Government has introduced these amendments at the last minute, there is a significant risk of nasty unintended consequences. The British Venture Capital Association, for example, says it fears that some of the content of clauses 35-40 could expose directors of companies – even those rescuing damaged companies from administration – to unlimited liability for underfunded pensions of any schemes within any companies they acquire or retain responsibility for.

Apart from the fact that there will be months of informal consultation anyway, there is a more fundamental question here. Does it necessarily make the law better when the Government pays great heed to what those consulted say?

The consultation process is in theory democratic. Anyone can have their say. In theory, the interests of ASW workers will be as well represented in that body of consultation as the interests of, for example, shareholders, investment managers or venture capitalists.

In practice, it is very different. The sheer weight of consultation responses to a piece of proposed legislation such as a Pensions Bill will always be enough to keep a good few Whitehall porters with sturdy steel trolleys in gainful employment. But in practice, the financial services industry has leg-ions of full-time employees whose job it is to draft this sort of thing. ASW workers only have their unions.

Supporters of Smith might even argue that, because of that in-built imbalance, he would be quite in order to ignore much of what the industry is saying.

If Smith&#39s supporters wanted an example of lobbying watering down a piece of legislation to the point where it had the reverse effect, they might point to the 1995 Pensions Act. From one perspective, the reason that protections for final-salary pensions did not work in the first place was precisely because the Government listened a bit too hard to lobbyists.

The Goode committee, formed after the Maxwell scandal, was intended to prevent exactly what happened to the ASW workers, that is, hard-earned pensions built up over many years disappearing over-night. The most important protection against that was the minimum solvency requirement. That required employers to have pensions fully funded so that, if they went bust overnight, they would be able to pay pensions in full.

The consultants who objected most strongly were those who advised big industries, notably those with mature pension schemes and lots of pensioners (such as the steel industry). They used a scare story to frighten the Government, claiming the strain of fully funding their pensions would sink those industries and companies.

Then the government did listen. It watered down the legislation to a minimum funding requirement, in which, it turned out, there would only be enough money on going bust to cover a third or a half of the scheme&#39s pension obligations.

Ironically, it was steel workers who became one of the first to find this out. But please note – the steel companies were not sunk by their pension schemes. Rather, the industry was going under anyway – no matter how little or how much protection there was. It was only a question of when.

As a result, the Pensions Act 1995 perpetuated what in many observers eyes is a ridiculous absurdity. If you lose your pension because of fraud, you are fully protected. But if you lose it because of misfortune or mismanagement – tough luck. Smith, in his supporters eyes at least, is at last correcting that. His critics will be the first to point it out if it does not work.

Andrew Verity is a personal finance reporter at the BBC


&#39Parliamentary watchdog is best chance of redress&#39

Equitable Life is increasing pressure on the Parliamentary Ombudsman for a fresh investigation into maladministration by the Government in the period before the FSA took over regulation of the industry. Chairman Vanni Treves told policyholders at the AGM that Parliamentary Ombudsman Ann Abraham is the best chance of compensation because she is not required to […]

Aifa should set out its plans for future

It is time for IFA trade and representative bodies to ask themselves and their members some difficult questions. This week sees the Money Marketing Virgin One State of the IFA poll suggest that not all IFAs are happy with Aifa&#39s status as a representative organisation for IFAs, multi-ties and mortgage intermediaries. Many believe that independent […]

First Direct is raising LTVs for offset loan

First Direct is setting up an offset mortgage for borrowers with lower levels of equity or relatively small deposits. Previously, First Direct has only offered an offset mortgage to customers with a maximum loan to value ratio of 80 per cent but borrowers with an LTV of 81-95 per cent will now have access to […]

Inside edge – Andy Young

It is hard to think of an industry that has gone through the same turmoil as financial services and each week there seems to be another issue about to turn the industry upside down. Mortgages are certainly one of the hot topics right now as everyone jockeys for position ahead of regulation in October. What […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm