In funds we trust

Banking on Death, or Investing in Life: the history and future of pensions

Robin Blackburn <em>Ver

It is my lung, said Boxer, in a weak voice. It does not matter . . . I had been looking forward to my retirement. He intended, he said, to devote the rest of his life to learning the remaining 22 letters of the alphabet.

George Orwell, Animal Farm, 1945

Boxer gained not a glue-factory's whiff of any retirement. The pigs flogged him to the knackers for whisky. Orwellian old age would never be pretty. In real life, we should hope that falling birth rates and increased longevity have not yet driven governments to plan mandatory euthanasia to maintain long-term balance in the national finances.

Even though Robin Blackburn's comprehensive book falls short of speculating whether ministers really do want us to die, his contribution is trenchant. He shows how deftly new-right apologists and financial advisers have exploited fears over pensions to push dubiously constructed alternatives and, in the process, promoted widespread unease about our post-retirement security.

Basic state pension provision brings bare subsistence living in Britain. The state provides additional means-tested benefits, but the take-up rates are marginal. Previously reputable occupational schemes are suffering the disappearance of defined final salary plans. The other non-state alternatives - contributory schemes run by employers or by specialist providers that absorb workers' savings without promising any specific return - are burdened by excessive management charges, mis-selling and straightforward incompetence, leading to reduced benefits.

Blackburn shows how a threatened "demographic time bomb" (lower birth rates, longer life expectancy) became a right-wing scare that the state pensions cannot survive - and that millions should turn instead to private schemes. But, he argues, a rushed switch to free markets is unnecessary. The state could and should start a sensible debate, warning of the need for enhanced savings - or perhaps, at least, a later retirement age.

Pensions are more prone than any other human activity to fraud. Pension planning is, in the economists' parlance, the ultimate one-shot game. Any mistake - such as trusting your future to a crook - cannot be remedied later. The time horizons are long, and that promotes a fatal relaxation about final outcomes. Pile on the dullness and complexity, and these become further covers for misrepresentation.

Our immediate priorities in Britain are to ban excessive charging, cease the erosion of company schemes, curb mis-selling, and to restrict managers' powers to cut entitlements - at least, while they are increasing their own bonuses. All could be attained through patient, dextrous legislation. But for Labour, there is more at stake. Challenges such as this remain late opportunities for the government to escape accusations of remoteness from real concerns and for it to contribute to the mood of relaxed optimism that has blossomed since 1997 (even the Queen now partakes in our new informalities). But the UK remains burdened by the deadweight, crisp- white-shirted rentier class - from corrupt pensions managers frittering away your savings to useless management consultants with BMWs at your local hospital - that it inherited from the government's Thatcher-Major forebears.

Will Labour opt to preserve this group or to repel it - which serious pension reform would partially do? That question embodies the government's fate. Many Blairites fear that their terms in government will yield nothing of nationwide note. But to act against so many vested interests, reformers must overcome a base reality of new Labour's innermost nature.

Ministerial life comprises twin imperatives: compulsory accommodation with numerous business lobbyists and the daily provision of "easy win" announcements, of which few non-politicians take the slightest notice. But to regain authority requires gritty trench warfare to challenge established forces, particularly in a field as complex as pensions. This means confronting those who have lived too well off recent developments and producing a clarified, long-term system that penalises managerial malpractice unambiguously. Is the Blair project capable of such vision?