There have been some very curious developments recently in the world of pensions – developments which show exactly how politically charged the whole business has become.Most curious of all was a recent announcement by the pensions minister at the DWP, Malcolm Wicks. At the last minute, with the bill almost through its committee stage, he made a clarification which came as a bit of a shock. The centrepiece of the Pensions Bill is the lifeboat for members of bust company schemes, the Pension Protec-tion Fund, designed to prevent situations like ASW – the steel company whose staff lost up to 90 per cent of their pensions after it went bust. Now until his clarification, almost every observer of the Pensions Bill and its progress had been under the distinct imp-ression that the Protection Fund would NOT be retrospective. In fact, there had been a big political fight because of it. When Andrew Smith announced the protection fund he was immediately asked “How is this going to help people like the members of ASW, who’ve already lost their pensions?” His answer was that unfortunately, with this legislation, they could not make it retrospective. That, of course, was crucial to the occupational pensions industry, which could validly argue that, what with all their black holes, it would be hard enough for them to indemnify scheme members from going bust in future, let alone paying for those which had already gone bust. It seemed a bit unfair on the ASW workers. It was their plight that drew this gaping hole in the security of occupational pensions to the attention of the press and the public; it was their suffering that had made the legislation politically possible. Though no fraud was involved, it was as if the 1995 pensions act had been drawn up to prevent a repetition of the Maxwell saga – without the Maxwell pensioners getting a penny. I remember an off-the-record meeting with a senior Whitehall source asking why it could not be made retrospective. He argued, strongly, that it would be a Pandora’s box. If you do retrospection once, you open the government up to any number of retrospective legal claims from other deserving causes, saddling Treasury and taxpayer with huge, open-ended liabilities. It took months of campaigning, led by the former Downing Street policy adviser Ros Altmann, to overturn that argument. Andrew Smith finally announced the Financial Assistance scheme, providing government help for the likes of ASW staff and others who lost money before the new pensions bill reached the statute book. There was already a question about where the money would come from. It was reported that Smith was told it would have to come out of the existing Work and Pensions budget; there would be no extra government money. So why after all that fuss did we learn from Mr Wicks that it would, after all, be retrospective in some instances? Almost every observer had thought the PPF would only cough up if the employer sponsoring the scheme went bust after the new act came into force. Now it turns out that the PPF will cough up even if the employer goes into insolvency proceedings before the act. What counts,we now learn, is not the date that the employer goes bust but the date that the pension scheme winds up. In other words, a company that was already in administration now, but where the pension scheme is not yet wound up, would be covered by the PPF. Was this just a technicality? The DWP’s official line was that this had been the legislative intent from the start. Well in that case it was not communicated very well: even the National Association of Pension Funds was unaware of it until two weeks ago. Were there other factors at play? You decide. Let me offer a few facts that may or may not be relevant.1) The taxpayer pays for the schemes that wind up before the Pensions Act is enacted and the Pensions Bill comes into force.2) The pension industry, through levies raised by the Pensions Protection Fund pays for schemes that wind up after the Pensions Bill comes into force. In both cases, the proverbial “punter” ends up paying, but the blame might end up in different places.3) We have just learned that the pension industry, not the Government, coughs up where employers are already in administration but the schemes have not yet been wound up.4: There is a large pension scheme for staff and former staff of Turner & Newall, the engineering group, which has not yet wound up, though it and its parent company the US firm Federal Mogul, are in a form of administration.5: According to the independent consultant John Ralfe, there is an actuarial deficit on the scheme of 875m affecting the pensions of 37,000 people.6: The trustees of Turner & Newall’s scheme have been instructed by the courts to reject an American plan designed to keep the scheme open.7: Before the Wicks clarification, one might have expected if the scheme wound up after April next year, the taxpayer would cop the bill. Now we know it would be the industry. Of course, we cannot say for sure that the Turner & Newall situation had any influence on ministers’ thinking in this matter. But with such a large potential bill for the taxpayer, a good civil servant would surely have drawn it to their Government’s attention. Andrew Verity is a financial reporter at the BBC
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In recent months, investors have become more pessimistic about both the European and the US economic outlook and yet stockmarkets have pushed on to new highs. Some would argue that this is a worrying divergence. We would take the opposite view. This appears to be classic bull market behaviour. A wall of worry has been rebuilt, and stockmarket resilience should be taken as a sign of strength. The market is discounting an improving economic outlook ahead, particularly in the south of Europe.
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