Predictions of the downgrading of pension inflation protection are silly-season nonsense
Pensions have rarely been far from the headlines over the sleepy summer. ‘Government poised to end pension increases for private sector’ or ‘Triple lock to go’ screamed the papers.
But now we have packed away our beach bathers, it is time for cooler heads. Advisers must get to grips with all this if they are to protect both their clients’ retirement savings and themselves from litigation.
The more I look at some of these claims, the more they smack of wishful thinking – not to say mischief making – by a few bored individuals left at home and trying to steer the agenda their way.
Let’s look at the facts. Government intervention in the Tata Steel crisis has proposed ending the annual uprating link with the RPI and moving onto the generally lower CPI. A more wide-ranging investigation into DB pensions is under way at the Department of Work & Pensions select committee, triggered by the BHS fiasco. The read-through from the Tata proposals points to the DWP committee calling for a statutory over-ride for all schemes, effectively cutting pensions by up to 20 per cent and letting companies off the hook for their pension liabilities. Or so some people would have it.
As the committee has only just launched its investigation, such thoughts are surely premature. It is also important to distinguish between the power of the Government and that of parliamentary committees. The latter’s thoughts are just that – thoughts.
It is true we are about to enter the conference season and political parties will need to have their pension ducks lined up if they plan on shooting any of them any time soon. But I should have thought they had more pressing matters in their in-trays and any suggestion the Government is about to introduce a universal statutory over-ride to trust deeds is pie in the sky. I hope it is, anyway.
Doing so would slash retirement incomes for millions. I would like to see the Government try that on public-sector workers. Yes, they now accrue at CPI, but this applies to future, not historical, benefits. There is a world of difference.
It is clear that with Tata and BHS we are dealing with two rogue employers. It would be grossly unfair if countless others elsewhere were punished for their failings.
BHS is a basket case; I feel so sorry for its former employees and pensioners. I am pretty cross, too, about the slapstick pantomime staged by the DWP committee.
When it comes to Tata, though, the bulk of liabilities were accrued when its 84,000 pensioners were employed by the state as part of the nationalised British Steel. Here the rogue employer is the Government, which has washed its hands of those responsibilities. Imagine saying to doctors and nurses: we are slashing your pension by a fifth by cutting your accrued benefits.
All that is for the Government and its conscience. I worry that innocent bystanders could be victims of these drive-by pension shoot-outs.
How fair would it be if crystal-clear trust deeds could be over-ridden, all to get the Government out of a hole of its own making? And never forget how small most DB pensions are.
Elsewhere, current hysteria around global deficit numbers is hardly worth remarking upon. The Bank of England cut interest rates for political purposes. When they rise again, deficit numbers will not look so eye-catching.
The triple-lock stories seem to emanate from interviews given by former pensions minister Ros Altmann. The prime minister’s office insists the triple lock will stay until 2020; Altmann says it is unaffordable. I am sick of hearing the word ‘unaffordable’ connected with the state pension. Recent major reforms included sharply increasing pension ages, the abolition of Serps and the introduction of the new level pension. All were predicated on plans for future affordability – with the triple lock as its cornerstone.
Raising the state pension age, particularly for women, by up to six, seven or eight years saved the Government a fortune. Abolishing Serps has likewise spared it shedloads. The Government’s own forecasts show spending on the state pension, as a share of GDP, falling. Where has all this money gone?
If these silly-season stories come true, we will see sharp increases in pensioner poverty and demands for means-tested state benefits, thereby reversing the whole strategy behind recent reforms.
My advice to politicians is to concentrate on getting Brexit right and leave pensions alone.
Teresa Hunter writes for the Telegraph and Sunday Times