In the City
Institutions under challenge
Jock Bruce-Gardyne
On Tuesday Mr Norman Fowler of the DHSS and his four assessors (Barney Hayhoe of the Treasury, Marshall Field from the Life Officers, Mark Weinberg of Hambro Life and Professor Alan Peacock from the University of Buckingham) held inquisition at the Elephant and Castle. Before them appeared the defenders of the institutional establishment — the National Association of Pension Funds — and the challengers: Messrs Chappell and Vinson, architects of the Centre for Policy Studies' scheme for Pension Take-Aways. The stakes were not insubstantial. At present rates of progress it is reckoned that 90 per cent of British industry and commerce will belong to institutions by the end of this cen- tury. Messrs Chappell and Vinson are out to challenge that prospective dominion. Even the most dedicated supporters of the status quo would be hard put to deny that provision for retirement is in something of a mess. If you start out in working life as a servant of Whitehall, a Public corporation, or a teacher, and keep Your nose clean and your feet beneath the desk for 40 years or more you are promised a Pension representing two-thirds of your filial salary, and thereafter guaranteed against inflation. If you choose a lifetime's service in the private sector, and pick your company with care, you may look forward to something even better. If you do not pick with care — or luck — you stand to do a great deal worse. If, like most of us, you switch jobs somewhere in midstream then all that you are promised when they put you out to grass in respect of the time you put in before you made your switch is what your °vim and your employers' pension contribu- tion was worth when you made it. If you are self-employed you can take out UP to 15 per cent of your earnings free of tax and lock them away in the judicious care of a City institution until you reach the age of 60. Unless that is, you are a wrestler or a table-tennis buff, in which case you can start drawing on your piggy-bank at 35; a croupier or an ITV (but not, it seems, a 889 newscaster, who can start to draw their divvies at 50; or a money broker, brass (not wind) instrumentalist or psychiatrist, who can clock on — or rather off — at 55. i.krid if you should happen to be a Field- Marshal, or Admiral of the Fleet, or Mar- shal of the Royal Air Force then you never draw a pension to the day you die: you re- main on the active list at half-pay. Which
used to be a splendid wheeze, but nowadays leaves you trailing behind the index-linked four-star brass hats over whom you used to lord it.
All this begs a number of assumptions. Even after two years of five per cent infla- tion, when the Government wants to float an item from its portfolio of public cor- porations on the Stock Exchange it normal- ly has to make separate provision to cover the indexed pension liability in respect of the employees, for otherwise there would not be enthusiastic takers. And the topping- up of pensions out of profits in the private sector has become commonplace. Were we to experience a return to the inflation of the Seventies, could the pledges written in the contracts of our public servants then be counted on? It is anybody's guess. But in theory those in the private sector should be covered, if only because by the time they retire their pension rights will own their companies, and be in a position to decree that those companies must stump up. In theory, that is.
This is where Messrs Chappell and Vin- son come in. Essentially their proposition is simplicity itself. Instead of requiring every new recruit to join the company pension, and keep his or her job until the jackpot falls due on retirement, let each one of them enjoy the option to devise and contribute to his or her own retirement package. If they subsequently get head-hunted, then the package is head-hunted with them. The in- creasingly claustrophobic stranglehold of the pension funds on the equity markets will be prised loose. The ideal of a property- and-share-owning democracy will become a reality.
To which the institutions say, 'Hang on a minute.' Occupational pension schemes operate on the assumption that everyone must join, so that the imminence of the claims of the 55-year-olds can be balanced by the certainty of long years of contribu- tion from the new recruits. Offer all the op- tion of the pension take-away, and the young will take it, leaving their elders stranded. Besides, if we are all given a chance to choose our own old age cover a lot of us will be feckless, gullible, or plain unlucky, and find that when the moment comes it has let the rain in. Worse, a lot of employers will seize the chance to opt out of making their contribution altogether. And in the overwhelming majority of cases those who did choose a personal pension package
would leave its make up to the institutions. So investor involvement would not be rein- forced at all.
For shame, say Chappell and Vinson. First, the present system is a rip-off of the young by their elders: and the response of the institutions tacitly concedes the point. As to the spectre of a host of foolish virgins, 'we regard as insignificant the risk that Lan individual's] portable pension pro- vision might ultimately be inadequate'. But clearly employers would have to be bound to continue paying their share, albeit direct- ly to the employees.
So where does the Government stand? Quite properly on Tuesday Messrs Fowler and Hayhoe did not tell us: they were there to probe and listen. In principle the pension take-away enthusiasts are preaching to the converted. Self-provision, choice, personal investment and job mobility are all buzz- words to our present masters. But principle and practice do not always go hand in hand.
Two things are already clear. The balance of advantages and obligations between the younger generation and their elders is going to be shifted in favour of the former, at least to the extent of offering a measure of inflation-cover to the job-changers; and not before time. The pension funds concede as much: the problem of the early leaver is, they said on Tuesday, a 'design fault'.
On the other hand that 'risk of ultimate inadequacy' is going to give the politicians pause. When pressed for definition of 'inadequacy' the Chappell-Vinson team refer to the pension promised by the state contracted-in scheme as the bottom of the downside (since portable pensioners who contract out would be required to keep a portion of their assets in trustee securities).
But for the citizen who retires today on £15,000 — let alone a multiple of that figure — that's quite a long way down. And he will still have a vote, with the capacity to use it vindictively — or to claim compensa- tion from the Treasury.
Yet in the end if our masters are serious in their commitment to involve the mass electorate in the success of free enterprise, this is surely a risk they must be willing to take. The investment managers of the Pru and the Coal Board Pension Fund (if and when Mr Scargill releases them to go about their business) may be models of prescience and wisdom, but the owners of the assets that they handle will never identify with the companies in which those assets are from time to time invested. How could they, since they have not the faintest notion which they are?
In practice, one suspects, the overwhelm- ing majority of employees will prefer to keep a hold of nurse regardless of an oppor- tunity to do otherwise. The institutions have not much to fear, even if the Chancellor begins to chip away at their fiscal privileges, as I hope he will. All the more reason to push the door ajar to in- dividual choice for the tiny — but perhaps eventually growing — minority that might take it.
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