At last - a reason to praise the Coalition.
The UK Government has finally moved to curb the worst mis-selling scandal in the history of British finance, greater than endowment mortgages, PPI, energy profiteering or even sub-prime mortgages. I refer to the legalised theft of billions of pounds from citizens' pension funds through excessive charges, a scandal that has been going on for at least 20 years and has ensured a miserable retirement for millions of older people.
Steve Webb, the Pensions Minister, has announced that, at last, there is to be a cap on pension charges and fees. In future 'only' 0.75% of Joe Saver's hard-earned contributions can be creamed off instead of 1-1.5% or even, for those who had pensions before 2001, up to 2.3%. This might not seem a big change. What's a percentage point, after all?
But, according to the Government's figures, someone saving £100 a month will lose £170,000 over the lifetime of their policy with annual fees of 1% and £230,000 for 1.5%. According to the RSA think tank, pensioners in Britain are receiving, for the same contributions, barely 50% of what they would get in low-cost countries such as Denmark. And they wonder why people have failed to save for their old age. Year after year we have been urged, by financial industry pundits and government ministers, to save, save, save for retirement. Don't leave it to chance. Don't rely on the miserable state pension. Put aside 10% of your income from the day you start work. Well, anyone who was stupid enough to do so will know only too well that this was money down the drain. Few people who have saved into pensions end up even with the value of their contributions after inflation.
The financially literate abandoned pensions altogether, realising they were a con, and invested what money they had in their houses or in ISAs (tax free investment accounts). Then came the property crash and the discovery that ISA providers (often the same people who run pensions) had found cunning ways to reduce the value of ISA by putting high charges on them. The British financial services are truly world class - at screwing their customers.
The insurance companies have not been alone in denuding older people of their livelihoods. There was Gordon Brown's abolition of dividend interest tax relief in 1997, which cost the pension pots of Britian £5bn a year. The policy of low-interest rates is also destroying older peoples' savings. With inflation running at up to 3%, and interest rates at near zero, pensioner savings are being eroded year on year. Inflation reduces the debts of people who have borrowed more than they can repay, by transferring wealth from people who have saved more than they borrow. In a very real sense, the financial crisis has been paid for by picking the pockets of pensioners. And of course, pensioners still face the annuities scam which, as the pensions expert, Dr Ros Altmann pointed out yesterday, remains almost as bad as the pensions themselves. Annuities are the policies which pensioners are eventually forced to purchase, by law, unless they are lucky enough to have savings of around half a million pounds or so. Fifteen years ago, £100,000 would have bought an annual income of around £9,000.
Today, you would be very lucky to get half of that. According to Dr Altmann, most people would have to live into their nineties before annuities became good value for money. The payments offered by different firms vary widely. Many naively buy their annuities from the company that ran their pensions, which generally give the worst deal. Loyalty is as rare in this business as honesty.
None of this is particularly new. Most people know pensions are rubbish. This has hit far more people far harder than, say, the profiteering of energy companies or payment protection insurance. You would think people who have lost tens or hundreds of thousands of pounds would be organising demonstrations, demanding action. But the victims are almost completely invisible, politically.
There are several reasons for this. Pensions are horribly complex and difficult to understand. And no-one likes to think about being old, until they are. There was also regulatory negligence of the highest order. Until recently, many were saving into pensions that were literally worthless because they stood to lose their right to pensions credit. The average pension pot in Britain is still less than £27,000 and many on low incomes saved hard even to achieve that. This will earn them annuities of less than £1000 a year. All that effort for so little.
But the main reason the pensions scandal has gone unaddressed for so long, I suggest, is because most of the people who should have been doing something about it (MPs, civil servants, regulators, academic experts) receive final salary pensions paid by the state. These are generally index-linked and extremely good value for money. This means it was almost impossible for them to empathise with constituents.
Indeed, it is only in recent years, when there has been pressure to reform state pensions for civil servants and MPs, that the issue has surfaced. So long as it was only little people being ripped off, no-one wanted to know. The wealthy have always had other ways of securing value in retirement, with stock and property portfolios, and they knew not to touch pensions with a barge pole.
The politicians, Labour as well as the Tories, left it to market competition to keep charges low. And, as in so many areas of deregulated economic life, this has provided zero protection for the consumer. As with energy, people lack both reliable information and any real choice. They are bamboozled by unrealistic forecasts and opaque contracts carrying lots of hidden charges. In Denmark, people receive a statement every year, just as with a bank. In Britain, all you receive is jargon designed to conceal .
The pensions scandal has been one of the worst long-term reverberations from the Big Bang in financial services deregulation in 1986. It has led to what we know call Rip-Off Britain, encapsulating a culture of financial piracy that replaced the generally sound ethics of British finance.
Trust used to be the most important thing in the City but the bonus culture, the drive for short-term profit and "light touch" regulation by the state, encouraged firms to treat their customers not as people but as a resource to be exploited. Prudence was replaced by plunder.
The Westminster Government has tried to shut the door after the horse has not only left the stable but is lying in the knackers yard. People have long since lost any confidence in pensions and in the managers of money in general.
Twenty years ago, Britain had one of the most vigorous savings cultures in the world. People really did try to provide for themselves rather than fall back on the state. But, like the man from the Pru, that has been buried for ever.
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