Private Eye on How the Tories Wrecked Private Pensions

I found this piece in Private Eye for 8th to 22nd July 2011 on how Tory legislation allowing companies to take ‘pension holidays’ wrecked their pension schemes.

“There has been widespread pension reform across the economy. People in the private sector have seen old defined benefit schemes disappearing.” So said Cabinet Office minister Francis Maude in his defence of serious public sector pensions cuts when a graph in pension advisor John Hutton’s r4eport proved that the “unaffordable” argument didn’t hold water.

But why have private sector workers lost decent pension arrangements providing fixed benefits based on their previous salary? It’s not simply because too many oldies are not living longer.

Unlike most state schemes of this sort, private ones have to be backed by funds, which were in pretty good shape until the companies providing them started taking extended pension holidays in the 1980s and 1990s to bolster profits in order to keep the City happy. The excuse was that the stocks and shares they shifted their funds into would magically grow to pay the pensions.

When this mirage was exposed after the stock market slump at the start of this century, not helped by Gordon Brown’s 1997 removal of pension tax credits, the response wasn’t to make good the shortfalls (which the markets would never have worn) but to shut the pension schemes. Today just one in five private schemes is open to new employees, compared to nine out of ten a decade ago, allowing Maude to make his comparison and “gold-plated” to become the default prefix for public sector pensions which are now in the firing line in the dash for public spending cuts.

So the reason why so many people now have an inadequate private pension, is because their bosses decided to use them money to boost their profits instead of providing for their staffs’ old age. Another rubbish policy that ultimately goes back to Margaret Thatcher. But hey, it does have its bright side for the Tories: it allowed Francis Maude a pretext for attacking the pensions of workers in the public sector. Trebles all round, as they say in Private Eye.

Tags: City of London, Conservatives, Francis Maude, Margaret Thatcher, Pensions, Private Eye, Private Pensions, Public Sector Workers