Why the pensions shambles will carry on

IT IS possible to correlate the collapse of Britain's occupational pension system with the increase in the influence of pension consultants.

As pension trustees came to rely on consultants for advice, they found that 'best advice' was rarely original, usually risk-averse, and too often little more than the conventional wisdom of the day. So every fund made the same mistakes and fell into the same traps.

As they relied on consultants for their asset allocation they all missed out on the great American boom of the early 1990s and as they allowed consultants to direct them to a few favoured fund managers and benchmark their performance, they created the conditions for the progressive emasculation of that profession and destruction of absolute performance.

To adapt Churchill's words, never has so much been owed to so many as a result of the advice of so few.

Having said that, the Society of Pension Consultants does organise a good conference, if only because it is a forum where the speakers swap many home truths about pensions which they would rather the members and trustees did not know about.

Yesterday was such an occasion. By the end of the sessions, with speeches from several of the best brains in the business, it was obvious that all but the most favoured are doomed - though there are still a few profits to be had by the consultants on the way to perdition.

Whitbread chairman Sir John Banham came up with some interesting stuff. He got into this area a few years ago when he did a project for the Institute of Actuaries and he highlighted how there are simply not enough assets in the country to give everyone an even break - or a decent pension, no matter how much they save.

If the average person cashed in their house, pension, savings, bank balances, car and all the other remotely liquid assets they have and used the capital raised to buy an annuity it would yield them £150 a week - out of which they would have to pay rent because they had just sold their house.

Frank Field, the Left-wing Labour MP who is so knowledgeable about pensions that the Labour Government dare not give him a job, estimated that someone who had been totally feckless would get more than that in State benefits by the time housing benefits, free council tax and all the other perks had been added in.

This from a Government that spends half the time telling people to save and the other half applying means tests to deny benefit to those who have done so. It is an odd way to rekindle the savings habit.

Banham certainly seemed to think we were doomed without major lifestyle changes. Shareholders would not support pension funds, the housing boom would not last another generation, taxpayers were not going to pay pensioners and we are all likely to live so much longer that even our children will want to pull the plug on us - particularly as they see their inheritance eaten away. His only solution was for us to save vastly more from much earlier - which of course most people cannot and will not do.

Banham is a former CBI chief, and so is Adair Turner who spoke in his capacity as chairman of the Pensions Commission, a research body set up by the Government to come up with some hard facts about savings and pensions to give Government a context for policy.

It is a tough job because the information does not exist in the form needed to answer the pressing questions, but among the points Turner felt able to make, two stood out.

One was that even if people do save, the projected rates of return in the current climate are very low.

The savings industry says it cannot live with charges capped at 1%. But if charges are much more than that they will eat up much of the projected return from the saving and render it not worth the effort.

His second point, repeated by several speakers, is that saving cannot solve the problem on its own. People must be prepared to work much longer. The solution to the pensions crisis is clear but will not happen because it requires a Government of real courage to embrace it.

Retirement age should be abolished and people should expect to work to between 70 and 75 before drawing a pension, he said. And as only a handful of people will save enough of their own volition, some form of compulsion is necessary.

On the Australian model it would be a forced deduction from payroll of a fixed percentage of salary and would fall on the employer, the employee or both.

Those measures would solve the pension problem - but of course no Government has the courage to enact them so the present mixture of charade and shambles is set to continue for a long time yet. Nice work while it lasts, though, for the consultants.

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