Labour is driving a stake into heart of pensions industry

Published on Friday 3 July 2009 20:28

ALMOST 90 years ago, the government passed laws making it possible for plc employees, including directors, to be members of pension schemes. But for more than 50 years, directors running their limited companies were barred from enjoying the same benefits.

In March 1973, the Conservative government recognised this injustice and passed laws allowing them to catch up for the lost years. This meant larger contributions than normal could be paid, with tax relief, and these rights continued unchanged until March 1987. The funds, of course, enjoyed the benefits of a long-running bull market in shares from 1975, plus the benefits of tax-free dividends and gains. So restrictions were announced reducing contributions, tax relief and benefits.

However, parliament recognised that what had been promised under previous laws should be protected.

Indeed, legal experts have continually reminded pension policyholders that they enjoy such protection because they have legitimate expectations to benefit.

But the current government doesn't recognise rights, laws of contract, or legitimate expectations to benefit.

There have been a significant number of attacks on pensions over the past 12 years by a government that views pension funds and business owners, or high earners, as easy targets. And you can now plainly see their impact on the UK pensions industry, which was once the envy of Europe.

John McFall, chairman of the Treasury select committee, sought my views on this issue back in 2003.

He wanted to know how the savings industry could be protected following the collapse of Equitable Life and the failure of Zero Dividend Preference Share Investment Trusts, investments supposedly as safe as a Volvo. He wanted to know how his government could rebuild the confidence of savers and pension investors. The answer is obvious: as a government you must be consistent and you must never introduce retrospective legislation – ever, ever.

To encourage people to save for their future you must be consistent with rules and tax treatments and recognise their legitimate rights to benefit. A government that turns its back on this undermines confidence, but this government does not appear to care.

Three years ago it introduced, under the grand heading of simplification, radical changes to pensions law. For simplification it should have said retrospection as ministers ripped up promises made to generations of policyholders.

The move failed thanks to a widespread industry backlash, but then the government introduced rules allowing a maximum cap of 1.5 million, to be indexed, introducing new higher levels of contribution allowing high earners and directors to catch up the years when they weren't able to put much away into pensions because of other pressures.

But in the April Budget Alistair Darling, at a stroke, introduced more retrospective legislation, which has left the pensions industry in a state of limbo. The Chancellor also retrospectively changed the definition of pensionable earnings, which makes it currently impossible to make any decent level of contribution.

And this is at a time following stock market crashes which heavily reduced the value of most private pension funds.

Of course, not everybody was double-crossed. Special groups such as MPs, senior civil servants as well as judges are exempt. In the 36 years I've been giving advice, I've never come across so many business people now so fed up and disgusted, and considering giving up or moving abroad.

I wrote to my MP – a member of the Labour Party – to complain. He in turn passed my complaint to the Chancellor with his own inquiry as to how this can be resolved. He has had no reply or acknowledgement, you will not be surprised to hear.

&#149 Alan Steel is chairman of Alan Steel Asset Management.