(Written 19/12/2002)
I've defended New Labour for quite some time now, but my patience is wearing thin. The latest idea that us folks should work for longer to secure a decent pension is an idea too far, in my opinion.
So the share prices fell and the investment analysts lost some gambles. Boo hoo. Looks like there's a world recession, boo hoo. Future pensioners didn't put enough money in, silly people, especially when share prices are falling and analysts are losing bets made with the investers' money. These foolish people that trusted company pension schemes ought to have realised that investments can go down as well as up.
Except that there's a side of the story that isn't being mentioned, and it's yet another tale of corporate greed. Here's what hasn't been mentioned so far, or at least so far as I've seen.
Pension schemes budget to make a certain amount of money at a certain time. Acturial tables will tell the trustees of the scheme how much they will need at any given date, so investments are made to realise profits at the time they will be needed. With me so far? OK. In other words, because next year you know you will need £Xm, you invest whatever it will take to be certain of getting £Xm. Investment values can fluctuate, so you actually plan to make £Xm plus a bit more - that way, even if some of your choices ("bets") don't come off, you'll still get the £Xm you need.
However, if all your choices pay out, you get far more than you need to pay the pensions, and this is where it gets interesting. Every three years, company pension schemes have to revalue themselves, to make sure that there is enough to pay all the future pensions, and they have to make this information available to all the subscribers to the scheme. It's one of those publicly accessible things that nobody ever notices and claims later not to have known about. "But the plans were available for anyone to consult! They were displayed in the disused wing, behind the door marked 'Beware of the leopard.'"
Given the investment policy outlined above, it should be clear that in bad times, pension schemes make money. In good times, though, they make money at a huge rate. All the bets pay out, at better odds than they were taken out on. This is where the fat cats' noses start twitching....
See, the employers own quite a lot of the company pension scheme, and they can do with it as they wish. It's all perfectly legal, all they have to do is make sure that the scheme can still pay all the pensions, now and in the future. During the last couple of booms in the economy, lots of companies raided their pension schemes... uh, that would be "used the pensions surplus for corporate consolidation."
Before all this is dismissed as lefty conspiracy theorising, I ought to reveal that I have been a party to all this. As a senior Trade Union person, I was also a trustee of the company pension scheme. Yes, I've sat with merchant bankers in the City and debated the finer points of investment policy... know your enemy, I say. (Just to keep the lefty credentials, I once had a fierce row about investment in
So I can report first hand on the corporate raiding that went on. Every three years, the employers grabbed their chunk and headed towards the bank, while throwing some cash our way - to be used for the benefit of the scheme. The last chunk of cash I was handed was a paltry £11m, so we're not talking beans here.
Given my TU role, and the need to justify pay claims with proof that the employers could afford it, we spent a lot of time tracking the things that the pension surplus was used for. In the main, it was used to reduce costs that the City would find unacceptable, thereby making the company look efficient, and a good investment.
You can see where I'm headed - if the surplus had been reinvested in the pension scheme.... well, there might still be a small crisis, but it wouldn't be the problem it seems to be now.
Bluntly, making money from investments isn't difficult; you just have to have enough money to get into the game. I'm no great financial brain, but I know one. He advises me, and most of the time I take his advice. I've mentioned my own rules here before, and they are quite stringent - no investment in alcohol, tobacco, drug companies, Murdoch, countries with a dodgy human rights record or polluters - but until about two years ago, I was making 20% a year, every year. It's become more difficult these days, but I haven't lost money. The key is to spread it around a bit, because someone, somewhere, is making money.
Now, if I can do this with a few thousand, imagine what it's like for a corporate scheme, where the deals are in millions. Ooh, it's a great feeling when the building you bought for ten mill sells for thirty! (We bought The Trocadero in
Like I said, I'm no expert on finance, but if I can make a few bob with all my bleeding heart liberal rules and values, pension schemes ought to be able to do so in spades, with fries to go. Maybe the difference is that when I was making 20% a year, I didn't take the profits, but reinvested them, because I reckoned that one day I might not be making 20%.
Those of you who are in corporate pension schemes, find out who your trustees are, and get to know them well. Ask them stuff. And if your employer tries to raid the scheme, raise hell and join the fight to have pensions classed as "deferred earnings", that way the employers won't own most of the surplus.
As to bloody New Labour, the idea that we can all carry on working until we are 70 is unfair, divisive and just plain offensive. The MD of ICI won't need to. The person who cleans his office will. The bosses will still retire at 60, the admin people will have to put in another ten years. The school-leavers of limited education won't find any entry-level positions; they're all occupied by older people of limited education. So limited that they believed that the company pension scheme would provide for them. The fools.
If this is socialism, the world has been turned upside down. If this Govt has any shred of the Labour Party left in it, then I am a banana.
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