The Business: David "Two Brains" Willetts May Be Wrong on Pensions, but at Least He and the Tories Are Trying to Grapple with the Issue, While Ministers Shelve It as "Too Difficult"
Hosking, Patrick, New Statesman (1996)
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 [pounds sterling]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 [pounds sterling]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. …