Wednesday 4 April 2007

Gordon Brown's Real Pensions Mistake

Just back from an excellent meeting last night in Mansfield. I thought that in the midst of the continuing media furore over Gordon Brown's pensions policies it is important to understand what Gordon Brown's real mistake over pensions has been over the last ten years.

The Chancellor of the Exchequer has come under attack for his early tax hit in his first budget on private pensions. Ed Balls then drops him in it by trying to defend Brown's position by explaining Gordon was only following orders, ie the CBI's orders.

The mistake Brown made was not the removal of an element of tax allowances on private pensions. The real issue is that in implementing a policy which was bound to contribute to the reduction in value of these pensions he failed to improve the basic state pension to compensate.

The pensions con of the last three decades is described very succinctly in an excellent booklet published last year by Professor Prem Sikka and Austin Mitchell, entited "Pensions Crisis:A Failure of Public Policymaking." Throughout this period large numbers of people were persuaded/cajoled into joining private pension schemes, taking out endowment policies and using various other financial instruments to protect them in retirement.

Fortunes were made in the city and employers then got even greedier and increased their profits and share dividends by taking "pensions holidays," ie just not keeping up with their side of the pensions contributions. Tax incentives were provided to drive more and more people into the hands of the pensions industry. As always the bulk of these tax benefits went to the better paid.

This was always going to be a risky business because the eventual pension payouts were at the mercy of the performance of the stock market. When the markets caught a heavy cold from the dot com boom and bust, plus various other market crises, the pension values started to collapse.

The reason for the anger of some pensioners and the media at Brown is that his tax hike made some contribution to the undermmining of the value of the pensions, no matter how insignificant this may have been in the context of the crashing market.

The real criticism we should have of the Chancellor's pensions policy is not that he removed a small element of the preferential tax treatment of private pensions but that whilst he was doing this he did virtually nothing to protect pensioners by increasing the value of the basic state pension and restoring the link with earnings.
The Government can reddress this failure by supporting my amendments to the Pensions Bill on 18th April, which restore the link between pensions and earnings immediately.

The state pension is the most secure and most efficient method of providing security in old age. It is not subject to the vagaries of the market and it pools the resources not just of the country overall but also across generations.

By the way being in Mansfield, in what was one of the biggest coal mining areas in the country, I was remind by retired miners that Gordon Brown is not averse himself to the policy of dipping into people's pension funds. Miners over generations through their contributions built up a significant pension fund in the belief that this money would be used to provide retiring miners with a decent pension. When I worked for the NUM part of my job was to assist in negotiating this pension scheme. Many miners are now very angry that they are not seeing the full benefits of their contributions because the Chancellor has allowed the Government to dilute the fund and in this way restrict the retirement benefits retired miners receive.

Billy Etherington, the Miners' MP, has worked hard with the NUM to raise this issue. He has my support and I will do all I can to obtain retirement justice for the miners.