Last week I wrote in praise of the Pension Protection Fund (PPF) which has given thousands of people a retirement income when their employer mishandled their money.
But I did not tackle one aspect of it – funding.
As you no doubt realise the money comes from a levy on eligible pension funds.
While this is risk-based it still means that the well-behaved Peters effectively bail out those Pauls who either cannot, or will not, fund their schemes fully.
The PPF can be inexplicably precious about this. When James Coney, finance editor of the Daily Mail and one-time Financial Adviser reporter, suggested that this meant that the fund was ultimately being under written by other savers, he received an admonishing email from the PPF’s public relations firm.
It is more than 26 years since Robert Maxwell stole Mirror Group employee pensions yet still some employers find it possible to manipulate funding.Their suggestion that he didn’t know his onions was somewhat undermined by the facts that he has written on pensions for many years and is a trustee of the Daily Mail pension scheme so sees precisely how much money it pays to the PPF every year.
Useful though it is, the PPF has only addressed one end of the equation when it comes to collapsing pension funds – making sure employees still get most of their pension and receive it reasonably promptly.
The other end must be addressed more effectively and aggressively by government and regulators. This is ensuring that employers fulfil their legal commitments to adequately resource their pension funds.
It is more than 26 years since Robert Maxwell stole Mirror Group employee pensions yet still some employers find it possible to manipulate funding.
While it is admirable that there is a PPF to aid employees there is a danger that company directors can regard it as a convenient place to dump their pension liabilities.
If the PPF bristles when a journalist points this out then it can only increase the tendency for employers to see it as an easy option when they hit financial difficulties.
So let’s be clear. The PPF is part-funded by the remains of defunct schemes but ultimately underwritten by other pension schemes. There is no taxpayer bail out. There is no magic pot of money.
And every time it is forced to rescue a large pension any resulting increase in levy will put further pressure on the remaining schemes.
Whether the PPF likes it or not it is savers and employers of the remaining pension schemes who are ultimately footing the bill every time a scheme collapses.
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On predictions and prejudice
A few months ago I suggested that the reason we had seen so many duff economic predictions on the impact of Brexit was that economists had allowed their personal prejudices to get in the way of objective analysis.
Now A J Bell has produced an intriguing review of 2017 share predictions by City analysts, which shows that the 10 blue chip shares that received the most “sell” ratings actually gained an average 9.5 per cent in value over 2017. Against this the 10 shares with the most “buy” ratings lost an average 9.3 per cent.
Could it be that the analysts were overwhelmingly against Brexit and allowed this prejudice to creep into their analysis of companies’ prospects?
Could it be that they bet wrongly against a Trump bounce?
It’s rather like me confessing that I found the whole gin fad incomprehensible and therefore predicting a collapse in Fevertree shares – which I very much am not.
Firms pay huge fees for the services of these analysts yet you feel that they might be better off employing the apocryphal chimpanzee with a pencil and a copy of the Financial Times.
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A pensions correction awaits
Pension tax relief is now costing £41bn a year, according to HMRC. Add that to the £91bn-plus for the state pension and you have £132bn going towards pensions every year.
That is bigger than the NHS budget of £116bn.
With politicians under increasing pressure over the performance of the NHS, the tax relief given on pensions must surely attract their attention.
You or I might think any extra spending should come with a root and branch reform of the way the NHS is managed.
Why are vast sums paid to drug companies for relatively cheap treatments?
Why are some patients left blocking beds all day while they wait for pills to be delivered before they can go home? Two friends have experienced this recently.
But no politician dares to challenge any aspect of the NHS.
So with income tax and National Insurance rises so hard to push through then a stealth attack on pensions at some stage looks increasingly likely.
Tony Hazell writes for the Daily Mail's Money Mail section
