JOHN HUMPHRYS: Alistair Darling, putting
aside the details for a moment, bearing in mind that we are talking about
the future and people having a reasonable income in their old age, are
you worried about the way that things have changed over the last year or
ALISTAIR DARLING MP: I think for a long, long time,
most people probably ought to be saving a lot more than they actually do.
One of the reasons that we are introducing annual pension forecasts for
people is that within about five or six years' time people will receive
an annual statement which will tell them precisely how much or how little
they will get in retirement. But, in respect of most of your report, if
you look at the final salary schemes, they have been in decline actually
since the 1960s. It is true that that decline has accelerated slightly
in the last year or so, but what we want to do as a government is to make
sure that whether people have their money in a final salary scheme, or
whether it's the money purchase scheme that was illustrated on the programme,
we want to make sure that we get more people saving more than they are
doing at present.
HUMPHRYS: You say that this trend
has been with us for some time, as far as the final salary scheme is concerned,
but if you look at the figures, two million fewer people in final salary
schemes now than there were ten years ago. It's accelerating very rapidly
indeed. I mean ten per cent have closed down effectively, shut their doors
to new members at any rate, in the last year alone, that's a very rapid
acceleration isn't it.
DARLING: There are about twelve
thousand final salary schemes in this country of which about four per cent
HUMPHRYS: ...ten per cent in the
DARLING: What has been happening
over the last year or so, is that many companies, seeing what has been
quite a substantial fall in the Stock Exchange and seeing that their contribution
holidays, that is the time that they don't have to put money into their
pension fund has come to an end, a lot of employers have said, hold on
we don't want to continue with this. Now, we could see this trend happening,
that's why last year I asked Alan Pickering, formerly of the National Association
of Pension Funds, and Gordon Brown and I asked Ron Sandler, to conduct..to
look into these matters and to make recommendations to us with a view to
improving the situation so that we can encourage more people to save. Now,
we will have Pickering's recommendations in June, at about the same time
Sandler will also report to Gordon and myself. Thereafter, the government
will publish proposals on which we will consult and our objective will
be, firstly, to see how we can reduce the amount of regulation to simplify
matters, to get rid of some of the complexities which undoubtedly add to
the cost of pension schemes. Secondly, to see how we, with companies, can
do more to encourage employees to save towards their retirements and thirdly
to make sure that we have the right incentives and they are operating in
the right way, to encourage people to save for their retirement. So we
will be publishing those proposals later this year. But this is something
that has been building up for some time. I believe that the basic pension
structure that we have in this country, the partnership between what the
public sector does and what the funded schemes have done is absolutely
right. But I do think and certainly in the simplification of regulation,
getting rid of some of that red tape, these are things that we need to
do a lot more and we will be publishing our proposals later this year.
HUMPHRYS: And do a lot more pretty
quickly too, because according to the Association of Consulting Actuaries
and actuaries by and large aren't people who make wild statements, but
they use the rather colourful description of what's happening, they say
they are very concerned that the drift away from good occupational arrangements
is accelerating towards a trot if not a gallop. Well, coming from people
like the actuaries, that's a pretty serious comment.
DARLING: Remember of course that
in this country, final salary schemes tended to be provided by large companies.
Now, as these large companies are less and less in number and you know
with the change in the public sector, more of it being moved into the private
sector over the last twenty years ago, the proportion of the population
who could get access to final salary schemes, has been declining anyway.
That's why, we introduced the stakeholder pensions which are designed
for about, you know five million people or so, who will never have access
to company pension schemes, because they don't exist for them and remember,
as more and more people move jobs, that sort of person who may have several
jobs between starting out and retirement, the final salary schemes are
not particularly appropriate for them. So you do need both money purchase,
stakeholder schemes as well as the final salary schemes.
HUMPHRYS: But there are many people
who do rely and are now relying on final salary schemes, thinking that
they are going to have decent incomes when they finally retire and what
people like KPMG are now telling us and they've done the sums for themselves,
they will get thirty per cent less in money purchase schemes, than they
would in final salary schemes. You don't seem as if you are terribly worried
DARLING: The KPMG study was curious
in the sense that most people's income actually comes from the State, rather
than even when they do have occupational schemes. You know that's always
been the case. I want to make sure that we do everything we possibly can
to encourage employers who have occupational schemes, to continue with
them. To make sure that as much money as possible that people save, actually
goes into their pension and not into red tape. That's why I've said on
a number of occasions, I think we've reached the stage in this country,
where we do need to reduce the amount of regulation, it's been put on for
the best of reasons by successive governments, but we've got a situation
for example, if you look at stakeholder pensions, where you have a tightly
regulated product, sold on a tightly regulated market, the result of which
means that it can sometimes be difficult to sell pensions to the very people
that you actually want to sell them. Despite that though, I am pleased
that some, tomorrow the ABI will publish figures showing that nearly seven
hundred thousand stakeholder pensions have been sold in the first nine
months. That's encouraging and remember, that represents a billion pounds
worth of new pension business. So, whilst people are quite right to say,
look the government ought to be doing more on final salary schemes, and
we are, you do need to get this into perspective. Last year, saw a fifty
per cent increase in pension sales last year, so it isn't all the case
that there's less money being saved, some people are saving a lot more
and that's something to be encouraged.
HUMPHRYS: And I want to come back
to stakeholder pensions in a moment, but let's just deal with the final
salary schemes and the effect of various things that have been happening
that we heard about in David Grossman's film. FRS 17, on the face of it,
immensely complicated, actually not all that complicated when you come
to look at it in some detail. Do you share the concern about the consequences
of this new rule.
DARLING: Well, at the risk of getting
rid of your viewers let me explain very briefly...
HUMPHRYS: Very, very briefly.
DARLING: What FRS 17 does. It's
a new accounting standard, a UK accounting standard that's designed to
make company accounts more transparent. It is fixed by the Accounting
Standards Board which, of course, quite rightly is independent of government.
What it has done though is to bring into very sharp focus the costs associated
with pension funds. Now I have the ....
HUMPHRYS: And therefore cause an
awful lot of people to say we don't want anything to do with it.
DARLING: It is one of a number
HUMPHRYS: Indeed......no, no, there
are other facts, I freely admit that, but if we deal just with FRS 17 for
DARLING: If we look at that last
week I had the Accounting Standards Board in to see me and I made the point
that the standard we have in UK is different from the international accounting
board standard which allows you with pension funds to allow for a bit more
smoothing effect, so that you avoid a situation where on any one day if
the Stock Market has fallen the pension fund looks terrible, whereas the
next day it might actually look okay. Now they're thinking about that
because as I say they're independent of government and that last thing
on earth I think you'd want is a government to start saying, you know,
that accounts shouldn't be transparent. Accounts should be transparent
and they are talking to their international counterparts, but I do say
this to you John, that it is - I think it is quite wrong for people to
HUMPHRYS: No, no.
DARLING: ...of accounts of what
is happening now. You made the point there are other problems that I think
do need to be addressed.
HUMPHRYS: Indeed. You made that
point, but as far as FRS 17 is concerned you've said to the accountancy
people: Look, we are concerned about it. Is there a better way of doing
it maybe using the international rule instead, so that's what we may have,
we may see a change. Is that right.?
DARLING: It is up to the board
HUMPHRYS: Of course.
DARLING: ... of government. But
I think there is a recognition, it's not just us saying, that when you
look at pension funds you must look at them in the round, just as when
you look at company accounts you should never ever just take a snapshot
on one particular day and say the company is good or bad. But I repeat
the point that if you are looking at how to get more people to save, which
is actually the thing that ought to concern governments, the whole point
of us setting up the Pickering and Sandler reviews that I referred to are
because I think we can do more to ensure that more of the money saved goes
into a pension, that's why we need to reduce the regulatory burden, reduce
some of the complexity. I do think to make sure we are doing the right
things we've got the right to balance the right drivers to make sure that
more people can save, so as I say we will be making those recommendations
later in this year and that will build on all the reforms we've made since
HUMPHRYS Right, so as far
as FRS 17 is concerned you've made your position clear and it's your understanding
that the board is looking at it and we may see some changes there.
DARLING: They are but I think they
will be keen and you know common sense tells you this must be right, to
make sure that our standards are the same as the international standards,
because we live in an economy, we're a very international open economy.
HUMPHRYS: Right. Let us - as you
say there an awful lot of factors involved in this, but another big factor
and it's a five-billion pounds a year factor, therefore cannot be ignored
is ACT the changes again, technical complicated changes that the Chancellor
made a while back, but the effect of them is to take five billion pounds
a year out of pension funds. That is a great deal of money and it is
having an effect isn't it?
DARLING: If that was right you'd
HUMPHRYS: Well everybody says it
DARLING: With respect they're not.
In view of an excellent leader in the FT last week which drew attention
to the fact that it was probably the very large fall on the Stock Market,
some four-hundred-and-fifty billion pounds because of events that we know
HUMPHRYS: Oh, that as well of course.
Yes, yes, I'm not disputing that. This is five billion pounds of
real money coming out of pension funds.
DARLING: That is big money. If
the ACT changes had been the main driver you'd have expected all this to
have happened four years ago. I would also just make the point......
HUMPHRYS: But the markets were
booming four years ago. That's why it didn't happen four years ago.
DARLING: What is driving companies
at the moment is the falling Stock Market, the fact that people are living
longer, all sorts of factors but remember also when we made those changes
we cut corporation tax by three pence which has hugely affected companies
profitability and therefore the amount of money available to its shareholders,
most of which are pension funds. I don't buy that argument at all. What
I do accept which is why we set these reviews up last year, is that we
do need to do more on the regulation front, we do need to make sure that
HUMPHRYS: You make that point very
clearly, but as far as this ACT change and this five billion pounds - as
Frank Field says, you saw him on the film - you'll not have been surprised
to see him there - he often talks about this particular subject, he knows
a lot about it. What he says is there is no such thing as a free tax,
and we'd have to agree with that, and when you look at the effect on specific
organisations, take Tesco, it had a very big pension fund, it had to put
another fifteen per cent a year in, I'll just finish this point if I may
- it had to put another fifteen per cent a year in to cope with the effect
of ACT changes. Now it's decided to close its fund altogether, so you
can't say that there's no effect from this.
DARLING: No, the major influence
of what is happening just now, is as I said to you is the fact that the
Stock Market has fallen, for reasons that we all know.
HUMPHRYS: I don't dispute that.
That is the big factor, but there are all these other things as well.
DARLING: Finance directors of companies
are also aware of the fact that they are paying less corporation tax.
Now quite deliberately when we made those changes, and incidentally nobody
- maybe Frank has, but nobody else - is arguing we go back to the very
complex corporation tax system we used to have with ACT. Nobody's arguing
that at all. What they said at the time was it was a very sensible reform,
it meant that companies could decide on investment decisions.......
HUMPHRYS: A lot of people were
very very upset about it at the time. The pension funds hated it.
DARLING: Nobody is arguing that
we should dismantle the present corporation tax system and go back to the
old one, but the main thing John, the main thing that is affecting companies'
considerations at the moment is the fact their contribution holidays are
coming to an end and you know, their faced with having to put more money
in. I may say though, we will bring forward proposals that I hope will
help companies as well as the government encouraging people to save, but
I do think some companies ought to start thinking, you know, a little bit
more long term at a time when some of them find great difficulty in attracting
and retaining staff. A pension fund - available access to a pension fund
ought to be seen as a major part of the remuneration package. Now as I
say, whether it's final salary which is fine for people who stay with companies
their whole working life and tends to benefit the higher earners, or whether
it is what we call defined benefit, that is the money purchase schemes,
that you put in so much and then you buy an annuity when you retire - the
crucial thing is how much money are people putting in. I do think companies
do need to take a longer view than they're taking at the moment. You know
I think some of them are citing all sorts of reasons that you know, perhaps
aren't altogether convincing as to why they're coming out.
HUMPHRYS: But they all add up,
don't they, and one of the things...
DARLING: ...which is precisely
why, as I say, later this year, when we've got the Sandler and Pickering
recommendations I want to publish specific proposals which I think will
go, you know, quite a substantial way to encouraging more people to save,
HUMPHRYS: ...what sort of thing
are you talking about?
DARLING: Well, I haven't had Sandler
or Pickering's recommendations yet...
HUMPHRYS: ...no, no, I understand
DARLING: ...but what I want to
look is, for example, you know, I've mentioned to you, you know, the regularity
burden, there's no doubt that the cost of selling pensions means that there
is less money available for saving. One of the reasons that I put a one
per cent cap on the charges that could be made for stakeholder pensions
is because I believe that we could drive down the costs and interestingly,
right across the pensions piece now, charges have fallen thanks to stakeholder
pensions. And as I say, you know, it hasn't affected sales, because sales
have gone up some fifty per cent in the last twelve months as well the
nearly seven-hundred-thousand stakeholder pensions themselves. But I think
we need to ask ourselves, have we got the right incentives there? Can we
do more to encourage more people to save? Are we doing the right things?
Are we doing it in the right sort of way? That is what the proposals will
HUMPHRYS: Just a very quick thought
about this story we see in the papers this morning, that some of the biggest
bosses are taking very, very large pensions for themselves indeed. Does
that concern you at all?
DARLING: Well the argument that
is used, I see, is that in an international world you have to attract you
HUMPHRYS: ...the usual calibre.
DARLING: I understand that argument
and you know, I can see. But I think also within this country, companies,
as I said just a few moments ago, need to do more to encourage to people
to remain in the workplace. I know in the United States for example, there
is one particular form of saving, what they call a Section 401K, it's like
our ISA's where, my understanding is that if you want to operate, get the
tax relief for operating that for a year and for the executives, you've
also got to operate it for your employees. I'm not going to anticipate
what we're going to ...
HUMPHRYS: ...but you might go down
that road, so in other words, the fat cats as it were, you wouldn't use
that expression I dare say, but the fat cats would have to make provision
for their workers as well for themselves.
DARLING: My interest, as a member
of the government, and frankly, the interest of all of us in this country,
whether we're a company director, or anybody else, is that we get more
people to save. Now, I'm not going to anticipate what our proposals are
going to contain...
HUMPHRYS: ...but you're looking
at that sort of area...
DARLING: ...what I can say is,
we will be publishing those proposals later this year, and that will, just
so no-one's in any doubt about this, it will build in the reforms we're
making, so we're keeping the state second pension, we're keeping the basic
state pension, we've got the pension credit legislation which will reward
savings in a way that doesn't happen at the present time because there's
all sorts of disincentives in the present system, we are going to build
on the structure we've got, I think the basic structure is sound, but I
do think we need to look further at those areas I've indicated.
HUMPHRYS: Some people looking at
the way things have changed over the last few months may say that's a slightly
complacent view, but then, and let's have a look at the stakeholder's pension
that you seem pretty pleased about, the figure tomorrow I gather will be
about six-hundred-and-ninety-thousand of them sold. The problem with that,
it sounds a lot, but if you look at your target group which is two-point-eight
million, these are not, by and large, members of that target group, there
we heard in the film there, they're often fairly well-to-do grannies who
are taking pensions for 'little Jimmy' or something. It isn't exactly what
you intended and, can I just finish this point because we've not unlimited
time unfortunately, the problem is that unless you go down the compulsion
route, which you were going to do in the early days as I understand it,
and you got cold feet about it, then things aren't going to change very
DARLING: Right, you make three
separate points. Let me try and deal with them. Firstly, pension planning
by its very nature is a long-term business and that's why no government
should, you know, chop and change its pension policy you know every time
there's a headline that you don't like. We've put in place since nineteen-ninety-eight
a structure that I believe is workable and it's affordable. It's the basic
state pension, the state second pension which helps particularly low and
moderate earners, we've introduced new options to enable people on moderate
and high earnings to save through a funded pension. That brings me to the
stakeholder pensions which is one of those new options. Now I've always
said that it would take time to build up. If everybody on the first day
that stakeholders went on the market rushed out and bought one, I would
be concerned, because buying a pension isn't something you rush into like
buying a television set or a CD or something like that. The fact though
that sales have steadily built up, and I notice that Willetts there on
the telly was telling you that 'oh, they've only sold five-hundred-thousand'
and you know, he's been, he told us we wouldn't sell any, he said no companies
would sell stakeholder pensions. Well he was wrong on both counts. What
you're seeing is a steady increase. Who's bought them? Well the truth is,
that until the Inland Revenue completes its analysis, because they actually
know who buys them, we won't know for a month or two yet, but I find it
hard to believe that you know, there are seven-hundred-thousand you know,
grandparents who bought their grandchildren pensions, so I am never, you
know, I've always said you have be cautious about this, so all these things
I think will help, but what I do say to you, I think we've got the structure
right, it's our job now to make sure that we can do more to help people
save in the future.
HUMPHRYS: Alright, in the midst
of all this, and a final thought, MPs I see, are going to get fatter pensions
in future while most people are having to slim down, they're going to do
rather better, another twenty per cent in their pension funds because of
course they'll enjoy the final salary scheme, or so it seems. Are you happy
with that? Doesn't it make you all look a bit greedy?
DARLING: Well, the House, if I
recall correctly, voted last year in principle to change the pension scheme.
I firmly believe that MPs should think very long and hard about doing things
themselves that others can't, you know, can't get. Now it's a free vote
on all those things, there's no, the government can't ...
HUMPHRYS: Did you vote against?
DARLING: Well I didn't vote for
it in the summer...
HUMPHRYS: ...but you would vote
DARLING: ...I think, frankly, we
as MPs ought to be concerned about the pensions of our fellow citizens,
that's first and foremost what we ought to be doing and certainly that's
what I intend to do.
HUMPHRYS: Alistair Darling, thank
you very much indeed.
DARLING: Thank you.