The business - Patrick Hosking
David "Two Brains" Willetts may be wrong on pensions, but at least he and the Tories are trying to g
There are few policy areas where the Conservatives are running rings around the government. But pensions is starting to look like one of them. This is not so much because of Labour's record. True, Gordon Brown's £5bn-a-year tax grab on dividends paid into pension funds has done much to exacerbate the pensions crisis. There is barely a conventional final-salary fund which is not in deficit.
But the Conservatives have their own skeletons. It was Margaret Thatcher, almost 25 years ago, who severed the link between the state pension and average earnings - a disastrous move that almost everyone (including today's Tories) now thinks was a mistake.
What separates the two parties today is the willingness of the Conservatives to grapple with a subject that ministers normally shelve in the "too difficult" basket. It's helpful that their spokesman on pensions is David "Two Brains" Willetts - a man who combines the intellect to wrestle with the broad sweep of history and demographics with an anoraky grasp of pensions rules and annuity rates.
"The scale and implication of the pension crisis is still not understood. But I believe it is up there with terrorism and global warming as a threat to much of what we value," he said in a speech to the think-tank Politeia the other day.
Malcolm Wicks, the pensions minister, with his narrow championing of the new Pension Protection Fund, looks a bit of a pygmy beside him. His £300m lifeboat is a laudable project, but doesn't begin to address the twin giants looming over the pensions landscape - rocketing longevity and humdrum investment returns.
Wicks is the dutiful carpenter doing his best to knock up a small, serviceable rowing boat; Willetts is the lighthouse-keeper warning of the tsunami thundering over the horizon.
Willetts is starting to flesh out firm proposals. He wants to boost the basic state pension in order to reduce the spread of means-testing caused by the pension credit, which reduces the incentive to save for the poorest half of the population. He wants to liberalise the rules so that the millions of people in "money purchase" schemes are not forced to use all of their nest eggs to buy an annuity at the age of 75 - another huge disincentive to save.
Most interestingly, he wants the government to increase the supply of the kind of financial instruments needed by institutions having to shoulder longevity risk - the chance that people will live longer than the actuarial tables predict.
He has proposed that the government could, in the course of its normal borrowing, issue "longevity bonds" - bonds linked to life expectancy. If longevity rose more than expected, the bonds would pay a higher rate of interest, thus enabling pension funds and life companies to discharge their heavier obligations.
It is a neat idea, though in my view wrong-headed: it risks passing the bill for this generation's inexcusable failure to provide for itself to its taxpaying children and grandchildren. The annuities proposal is also questionable. It could easily become a simple way for the well-off to dodge tax.
But, overall, the Tories are at least giving the impression of doing what oppositions should do: highlighting problems, suggesting remedies and putting the government on the spot.
As we baby boomers head towards middle age and beyond, the vast majority with no state-guaranteed public sector pensions have a growing sense of unease about their retirement finances. House-price smugness is rapidly giving way to pensions anxiety. The Conservatives have located a rich new seam of middle-class insecurity.
The last time I wrote about Oliver Letwin, the shadow chancellor, I berated him for his £100,000 part-time job in the City. By taking the N M Rothschild shilling, I wrote in December, he was "hopelessly compromised" on numerous policy areas. Within an hour of the article appearing on the NS website, Letwin resigned the Rothschild job. He is now - legitimately - starting to comment on City matters. And it is perhaps no surprise that his first target is the Financial Services Authority. But what a pity that he devoted his first big public fusillade - reported in last weekend's Sunday Telegraph - to trotting out the familiar old City complaint about over-regulation and intrusion.
It is perfectly true that the Canary Wharf bureaucrats waste an awful lot of investment bankers' time. The red tape and the obsession with box-ticking probably achieves very little. But the bankers have an army of highly paid spin-doctors and willing journalists only too happy to make this point ad nauseam.
What Her Majesty's Opposition should be pointing out is the FSA's far more egregious failing. It has still not claimed a single big City scalp - despite daily evidence of insider dealing, market abuse, mis-selling and fraud.
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