Time to Stop This 'Organised Theft'; AFTER THE EQUITABLE LIFE DEBACLE, THE CITY EDITOR CALLS FOR A CHANGE IN THE PENSION LAWS AND WE ANSWER THE QUESTIONS INVESTORS ARE ASKING;Nanny State Should Let People Manage Their Own Savings

Daily Mail (London), December 13, 2000 | Go to article overview
Save to active project

Time to Stop This 'Organised Theft'; AFTER THE EQUITABLE LIFE DEBACLE, THE CITY EDITOR CALLS FOR A CHANGE IN THE PENSION LAWS AND WE ANSWER THE QUESTIONS INVESTORS ARE ASKING;Nanny State Should Let People Manage Their Own Savings


Byline: ALEX BRUMMER

SAVING for a pension, we have all been brought up to believe, is one of the safest and most sensible things we can do with any spare money. Like an investment in property, it will, over time, always come up trumps.

But all that has been challenged by the implosion at Equitable Life, Britain's oldest mutual insurance group, which has closed its doors to new business.

The assumption about the security and good sense of piling surplus cash into pension funds has suddenly been undermined.

When, nine years ago, the late Robert Maxwell raided the pension funds at Mirror Group Newspapers to meet cash shortfalls elsewhere in his business empire, the public could at least understand that this was a straightforward case of fraud.

Protections were put in place to make sure such raids could not take place again. But what is going on at Equitable Life, and what it says about the way in which the pensions industry is managed and governed, is far more insidious.

It is not a one-off like the Maxwell experience. But it points to the hubris, management shortcomings and over-regulation which leads some critics in the financial world to describe the private pensions industry as 'organised theft'.

In particular, the critics are angry about the requirement by government that most cash must be placed in low-yielding gilts.

It is difficult to overstate the seriousness of the Equitable Life debacle.

At a stroke, its management, without any consultation with the 650,000 policyholders who own the company (as it is a mutual), has told up to one million professionals who hold one of its pensions that these will never be worth what they were promised.

THESE policyholders have two choices.

Either they have to accept years, or even decades, of far worse performance than they could earn on other pensions and savings products, and a far poorer retirement than they planned.

Or they can walk away from the company and in doing so forfeit 10 pc of the value which many will have scrimped to accumulate over their working lives.

When Gordon Brown set up the Financial Services Authority (FSA) three years ago as a reaction to the collapse of Barings Bank, it was promised that this new super City regulator would have draconian powers to intervene in the market and ensure the safety of our savings and investments.

But with regard to Equitable Life, the FSA stood in the shadows while the insurance group's arrogant management, led by managing director Alan Nash, battled with its policyholders.

First, the insurer tried to wriggle out of promises of guaranteed high returns to 90,000 pensioners. It was challenged in the courts by rebel policyholders and lost the battle.

Even when matters worsened in recent months, the FSA showed complacency by allowing the Equitable to continue to advertise and sell its products as though the company had a secure future.

The legal fight with policyholders left a [pounds sterling]1.5 billion black hole in the company's accounts. The Equitable's reserves were so thin that the only possible way to meet its obligations was by reducing the benefits to its other pensioners and policyholders.

At the heart of the Equitable fiasco are the peculiarly complex regulations which govern pensions and make them almost impossible for even the most financially literate member of the public to understand.

Essentially, successive governments have made a Faustian pact with the British people.

They have offered generous tax concessions to those who save through private pensions (whether personal or corporate), in exchange for dictating to people what they must do with the pot of cash when they retire.

Under the present law, only a proportion of the pensions that people have saved for can be taken as a cash sum. The rest has to be used to buy an insurance policy known as an annuity.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Time to Stop This 'Organised Theft'; AFTER THE EQUITABLE LIFE DEBACLE, THE CITY EDITOR CALLS FOR A CHANGE IN THE PENSION LAWS AND WE ANSWER THE QUESTIONS INVESTORS ARE ASKING;Nanny State Should Let People Manage Their Own Savings
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?