BBC On The Record - Broadcast: 20.10.02

Film: Film on Pensions. Is the Government prepared to take the tough decision needed to solve the pensions crisis?

PAUL WILENIUS: Not only has morning broken for Alison Parr, so have her dreams of a comfortable retirement. Her husband Andrew has spent a lifetime at the Allied Steel and Wire plant topping up his pension. Now the firm in Sheerness has gone into receivership and his union's worried that their pension fund could be virtually empty. MICHAEL LEAHY: Where pensions are under threat, where our members for instance have paid in thirty years and those pensions are under threat, if individuals are going to have confidence for the future, then the government has to step in and guarantee those pension funds. WILENIUS: For almost thirty years Andrew Parr has worked in this steelworks saving for his future, only to see the company collapse and his entire pension threatened. Millions of people - young and old - now fear the same thing could happen to them. Ministers are so alarmed they're rushing through new proposals to try to tackle the crisis within weeks. Pensions have now jumped to the top of the political agenda. Many companies are rushing to close down their superior final salary schemes, which guarantee a pension linked to pay and replace them with inferior pensions linked to the value of the troubled Stock Market . Sixty per cent of companies' final salary pension schemes are now closed to new members. And there are 1.6 million fewer people with any form of occupational pension at all, than ten years ago. While the Stock market has fallen by forty per cent since the end of 1999, dramatically reducing the value of pension funds. FRANK FIELD MP: We are on the verge, I believe, of seeing a pensions meltdown, what the government has to do is not wring its hands and turn and face the corner but to say what major reforms can we bring forward which not only achieve some of our other long term objectives such as abolishing pensioner poverty, but do so in a way which immediately begins to lift the pressure off those schemes which might otherwise go to the wall. WILENIUS: Andrew Parr's not the sort of man to give up without a fight. He's on his way from his home on the Kent coast to take his case to the heart of government and to tell Ministers they have to act now. STEVE WEBB MP: People often talk about a time bomb in pensions and normally they think about paying for pensions in years to come and that they'll all be unaffordable, but the real time bomb is the fact that many people now of working age are heading for poverty in old age and that's a problem that's got much worse in the last five years and is set to get much worse in the next five years. WILENIUS: Selling pensions have been the job of the men and women from the Pru for 150 years. Here in the City last week, union reps were knocking on the door of their bosses to save their own pensions scheme. The Prudential is following ICI, British Airways, Sainsbury's and many others who've closed their final salary schemes. Their anger is shared by the rest of the union movement. JOHN MONKS: I'm not one of those who preaches that strikes are a good thing but on protecting pensions I'm very much a militant, count me in on that particular thing. I think the boardrooms of Britain have got to wake up to the fact that many of them are lining their own pockets quite generously as far as their own pension schemes are concerned and at the same time cutting back on staff pension schemes. Well that is such hypocrisy that everybody notices and it's fuelling a new militancy in Britain at the moment, it's probably one of the biggest causes of militancy in Britain at the moment. MICHAEL LEAHY: There will be a big political price if the government don't act on pensions. A moderate union like ourselves who don't take industrial action lightly, have necessitated to take industrial action in protection of our members' interests. Now we don't want to do that. We shouldn't have to do that. Our members should be protected because it undermines the stability of the industry. But we will continue to do it and if the government don't legislate there will be an enormous political price that will be paid by this government and any future government. WILENIUS: There was no resolution during the two hour meeting as company bosses were forced to listen to the growing concerns of the unions. And as a last resort the union is prepared to strike. ROGER LYONS: Well I think we have made it very clear to the board and they understand that they've attempted to make changes to the pensions without proper consultation. They are now absolutely committed to having proper consultations with us so we can look at all the options that our members want today and in the future. WILENIUS: And last week the final salary pensions stampede continued when another leading pension company announced it was closing its scheme to new members. ADVERTISEMENT: At Scottish Widows..... WILENIUS: It's now so serious, the government's critics want next month's Green Paper on pensions to outline radical measures to rescue the whole pensions system. And they want them introduced swiftly, as it's now facing a real disaster. WEBB: It's almost too late already, most major companies have now closed their final salary pension schemes to people who start working for them, now that will take a long time to work through into retirement but that very good form of pension provision which many of the best off people in retirement that's what they're living on is not something that their children and grandchildren will see. DAVID WILLETTS MP: This is the biggest crisis in funded pensions since the war. What it means is millions of people are going to retire with an income way below what they've been hoping and expecting, and we can already see its effects amongst the recently retired, people who have retired in the last few years a smaller number have an occupational pension than would have done ten or twenty years ago. WILENIUS: One of the ways the government might try to help people like Andrew Parr in future is by simplifying the tax system covering pensions. However, it's already been attacked for increasing the tax burden on pensions. In their first Budget they imposed tax changes which put five billion pounds a year tax on pension funds. Overall that amounts to approximately twenty-five billion pounds under this Labour government. Even a former new Labour Minister thinks this was a big mistake. FIELD: It's a wonderful wheeze for those who think they can make X million pounds quotes for the Exchequer but it actually pushes pension reform in the wrong direction. It's already been going in the wrong direction for long enough, it's about time the government got on side of taxpayers and supported decent people who want to save for their own retirement to be able to do so without being clobbered around the ears for doing that simple, but very important act. WILENIUS: Another key obstacle hampering the running of effective pensions schemes, is the sheer weight of red tape and bureaucracy imposed by the government. An independent study showed that there are thirteen hundred pages of tax regulations, which are creating huge frustrations for many businesses. WILLETTS: One problem is the burden of regulation, there's just too much hassle running a pension fund now and many companies can't spare the staff or it can't afford the cost of doing so. So we worked with Alan Pickering who was commissioned by the government to look at how you could cut back on the red tape and of course the tax rules are terribly complicated, over a thousand pages of tax rules on pension funds when a generation ago there was fewer than fifty pages, so there has to be a big reduction in the sheer administrative burden of running a fund. WEBB: There is a case for simplifying the regulation that there was a knee jerk reaction to the Maxwell scandal and arguably it went too far in the other direction so that funds that are basically solvent are basically okay are nonetheless facing more of a squeeze than they need to. So there are things at the margins that would help. They could change the tax rules about retirement so that people can draw a bit of company pension and go on working for their old employer which would be entirely a good thing, but none of these changes are going to make companies want to turn the clock back. None of these changes are going to make an employer want to put hundreds of millions of pounds into the pension scheme when by switching the nature of that scheme to a money purchase scheme, where they just put in what they want to, they get rid of that obligation. WILENIUS: When he arrived in Whitehall, Andrew Parr and other pension victims were ushered into a meeting with officials and Ministers. On The Record has learned that some Ministers are now thinking of taking the controversial step of using compulsion, to force companies and individuals to save for their retirement, even though it will spark off opposition. WILLETTS: I personally am wary of compulsion, partly just on principle, I think, we're grown ups and I think there's too much compulsion in this country, I want people to be free to run their own affairs. WILENIUS: Many others say that compulsion is the only serious way of saving pensions, as we've come to know them in Britain, over the last century. FIELD: We're at the same stage now on pension reform as we were in the First World War where the government found that if it relied on people volunteering their services to fight the war we were going to lose. Similarly if we continue to rely on a voluntary system of people saving for retirement the war against poverty and old age will similarly be lost and therefore the crunch issue for the government is whether it's going to move from a voluntary system of savings to one of compulsion. WEBB: The single most important thing that the Green Paper could do to sort out this problem for the long term is make it compulsory for employers when they take somebody on to put money into a pension scheme for their employee. We expect employers to pay four weeks paid holiday when they take somebody on, it should be compulsory that they put some money into an employee's pension scheme whether they run it or not so that then everybody is covered and the government just doesn't leave it and hope people save and hope that companies will provide. WILENIUS: Inside the Department for Work and Pensions, Ministers are finalising proposals to try to save the pensions of millions of people. There are worries inside Tony Blair's government that if they go for compulsion, it could prove unpopular with business and many voters. But some Ministers feel if they don't take this dramatic step now, it could condemn present and future generations to a life of poverty in old age. MONKS: I'm sure there are people in the government who think that compulsion is the only way forward, of course there are others who say well listen to the CBI. That's a battle that's going on I know in the government at the moment and so we're very much backing those who say to employers keep up your sense of obligation and don't run away from it and if necessary we'll make you fulfil the obligations which you freely entered into in the past. WILENIUS: Andrew Parr's driving back from his meeting with Ministers, but his problems - along with millions of others - remain. Critics say that the government must put pensions back on the right road, or face the political consequences. FIELD: If we meander around and waste the opportunity in this Green Paper, it's not impossible that by the end of not this year but next year, the electorate for some reason or other has forgiven the opposition for past behaviour and there's a real fight then about the next General Election. If we don't lay the plans now and begin to convince the electorate we're going to deliver on the first phase of those plans before the next election, many of us may find it very, very difficult to get back into the House of Commons after the next election. LEAHY: They must act and if they don't act on this issue, which is an issue which is the top of everyone's agenda, then this could be as damaging to them as the Poll Tax was to Margaret Thatcher. WILENIUS: This powerful warning from the union leader fighting for a comfortable retirement for the Parr family, shows how high the political stakes are. On The Record has learned that Ministers are even considering setting up a Royal Commission to try to sort out the pensions mess. It's not an issue they can delay or fudge, say critics. To ensure that today's workers have something to look forward to when they retire, the Labour Government will have to take those tough choices soon.
NB. This transcript was typed from a transcription unit recording and not copied from an original script. Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, the BBC cannot vouch for its accuracy.