In hindsight, one of the best changes made to the MP’s Pension Scheme in 2015 was that former government ministers would no longer benefit forever from the higher salary.
Given how many ministers Theresa May has been through in the past two years, that could have proved very expensive, particularly given that some served for just a few weeks.
The MP scheme now operates like a career average plan, which in many respects is fairer, but that does not mean that further changes to public sector pensions should not now be on the agenda.
The great debate over the NHS Pension Scheme with lifetime and annual allowance breaches has merely served to show how generous this is.
Likewise, the Teachers’ Pension Scheme (albeit more expensive in terms of contributions for members) is massively underfunded and contributions from employers are set to rise this September.
At the Sunday Times we recently interviewed MP Michael Fabricant who talked candidly about his fortune. The son of an academic, he became independently wealthy building a broadcasting business that sold to 48 countries round the globe.
So how does he invest today? He does not. Mr Fabricant is paid an MP’s salary of £77,000, has a second home in Westminster, which has soared in value since he bought it in 1993 –presumably using taxpayer cash to fund it in some way – and of course, has the MP’s Pension Scheme.
That should yield enough for him not to worry about equity market exposure.
He also got his fingers burned when he bet on a US bank that failed in the 1980s, which has put him off investing.
But having politicians and ministers who are not in the equity markets means they can have little appreciation of risk.
If your pension is essentially gold-plated by taxpayer cash and is still generous, then how can you know the worries of the ordinary person when it comes to putting their money in the stock market?
You have got to have skin in the game – that is why you have to respect those fund managers who do have their own cash in their investments.
Perhaps that is why the default settings on auto-enrolled pensions are so risk averse, because the policy-makers who designed them do not have any understanding of the nature of markets. But these 10m new savers must have an incentive to do better with the returns on these pensions.
Back at the turn of the century, I was invited to a discussion in Whitehall on the notion of compulsion, before auto-enrolment was a concept and everyone was talking about behavioural economics.
I, along with the other consumer representatives, advocated some kind of forced savings plans to help ordinary people put more money away – this was from a group who were largely pro-free markets and anti-nanny state.
The civil servants and the politicians also round the table were appalled. “Why wouldn’t people save when they know they need money in retirement? All we have to do is communicate better warnings to them.”
These highly-educated individuals with secure jobs and even more secure pensions had no concept of the behaviour of ordinary people.
The lesson is that if someone else is picking up the risk for you, then you just do not need to worry about it. And in that context, we are never going to get all those millions in auto-enrolled pensions to do the same thing.
Not unless someone forces them to take ownership of the gift they have been given.
Regulatory crisis
The chances of Andrew Bailey filling the big job at the Bank of England when Mark Carney goes are receding every day.
The London Capital and Finance scandal looks like it may have undone any hopes the current FCA chief executive had of getting his hands on the governorship.
LCF has turned from the collapse of a slightly opaque mini-bond, into a full-blown regulatory crisis.
It is frankly not good enough for Mr Bailey to protest, as he has done, that he knew nothing of the regulatory processes that authorised LCF before he took over the job.
If you are in the hot seat you need to act and have answers.
And besides, there were plenty of chances for the FCA to go over the LCF accounts after it was regulated when Mr Bailey was in charge. Opportunities to save the fortunes of savers were missed and missed again.
As well as a criminal and independent inquiry in to LCF, it now looks as if a private case is going to be made to hold accountants and other advisers in the scheme responsible.
This scandal has a long way to run yet, and some big scalps may be claimed along the way.
Ancient processes
I was off for Easter and one of my many jobs was shuffling the family paperwork – or doing dad-min as we call it.
Part of it was going through all the kids’ savings to ensure they were invested in the right place.
I discovered £250 languishing in a child account with Virgin Money. To switch this money out everything had to be done in paper, including sending signatures as a trustee in order to get a cheque sent.
So much for the digital revolution.
James Coney is money editor of the Sunday Times
