James Daley: First ray of light for the people whose pensions went bust

Alan Johnson, the Secretary of State for Work and Pensions, may have taken his first steps down the road to redemption this week, as he gave a new sliver of hope to the thousands who have lost their retirement savings in bust pension funds over the past few years.

Since taking the reins at the DWP five months ago, Johnson has presided over some truly toothless, indecisive policy-making, which has left most pension campaigners despairing. But his move this week to guarantee decent benefits to the pension victims who are nearest retirement had the feel of a tactical move. It could lay the groundwork for an eventual climbdown by the Government, which has so far stubbornly refused to budge in its stance on the pensions crisis.

It is well known that the £400m that has been pledged as compensation (through its Financial Assistance Scheme) is grossly inadequate to provide any meaningful aid to most of the 65,000 people who have lost their hard-earned savings. This money would, in fact, provide just 200 people with a retirement income of £12,000.

Until now, however, Johnson (and, more precisely, the man holding the purse strings, Gordon Brown) has categorically refused to put up a penny more. But Johnson's promise this week to pay 80 per cent of lost benefits to those who are within three years of retirement would strongly suggest that more money could be on the way.

His decision to announce a review of the FAS's funding, at next summer's spending review, is the first time the Government has ever even entertained the suggestion it might provide more money for the cause.

Although Brown has made it clear there is no question of any more cash for now, Johnson appears to have worked out that the majority of those who have a call on the FAS are still some way off retirement. So, by guaranteeing a decent deal for the ones who are nearest to drawing their pension, he has bought himself some time.

People may continue to moan about the inadequacy of the £400m, but, in fact, no claimant will now be paid out any less than 80 per cent of their loss, before May 2007 (when the new guarantee comes to an end).

The more cynical have already expressed concern that this may be a short-term political manoeuvre, aimed at winning back some of the lost votes of pensioners ahead of the election.

With no firm commitment to provide more money for the FAS, there is nothing to stop the Government sticking to its £400m budget and, after the election, informing the younger victims of this scandal that they are set to receive next to nothing in terms of compensation.

But those closest to Johnson believe this genuinely represents a turning point. With Tony Blair rumoured to be in favour of providing proper compensation for the victims - many of whom, let's not forget, have lost a lifetime of savings through no fault of their own - there is now a real pressure on Brown to take a more lenient view once the election is over.

I don't want to give the victims of this scandal false hope. After all, a single step in the right direction does not wipe out the catalogue of callous decisions that have preceded it.

However, with his feet now firmly under the table, Johnson has at least finally loaded the gun for a showdown with Brown. Let's hope he has the courage to go through with it.

* Lots of fuss has been made about HSBC's 8 per cent savings account, launched this week. But before you get carried away, read the small print. Savers are able to pay in a maximum of £250 a month into the account, so the most you'll make in interest over the entire year (after tax) is about £100 - that's about 3.4 per cent of the amount you will have invested. Don't get me wrong, this is by far the best rate in the market for those who are regular, modest savers, but given the small amounts of money involved, it's not an offer worth moving your bank account for (you must have your salary or pension paid into an HSBC current account every month to qualify). It sounds impressive, but when you look more closely, this is nothing more than a bit of clever marketing.

Being brave can be the better way to invest

Prudential went to a lot of trouble to boast about how well its with-profits funds are doing this week, rolling out its UK boss, Mark Wood, to explain how good they are compared with the competition.

You can hardly blame it. After all, the Pru was pretty much the only life company not to over-bonus in the good times, holding enough back to continue making generous pay-outs throughout, and beyond, the recent bear market.

A £1,000 lump sum invested in the Prudence Bond eight years ago would now be worth about £1,550, outstripping the returns on a building society savings account by a healthy margin, and thrashing its competitors.

But Pru's very own presentation reminded me exactly why with-profits is such a lousy product. One of the main reasons its investors have done so well is that the management of the underlying fund has been exemplary. But if investors had had the courage to invest directly, rather than through a with-profits fund, which artificially smoothes the ups and downs, they would have done much better. The Pru's underlying with-profits fund has returned about 75 per cent after charges over the past eight years - considerably more than its investors got.

With-profits takes advantage of the British public's fear of risk, depriving investors of returns they would have earnt simply by investing directly in a diversified portfolio. While the Pru believes in with-profits revival, I hope that the recent dive in sales is the beginning of their end.


Independent Partners: 10 top tips for retirement. Get your free guide here

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

    The secret CIA Starbucks

    The coffee shop is deep inside the agency's forested Virginia compound
    Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

    How the Establishment closed ranks over fallout from Nessie 'sighting'

    The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
    One million Britons using food banks, according to Trussell Trust

    One million Britons using food banks

    Huge surge in number of families dependent on emergency food aid
    Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

    2,500 years of history in 3,000 amazing objects

    Excavation at Italian cafe to fix rising damp unearths trove
    The Hubble Space Telescope's amazing journey, 25 years on

    The Hubble Space Telescope's amazing journey 25 years on

    The space telescope was seen as a costly flop on its first release
    Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

    Did Lord Ashcroft quit the House of Lords to become a non-dom?

    A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
    Apple's ethnic emojis are being used to make racist comments on social media

    Ethnic emojis used in racist comments

    They were intended to promote harmony, but have achieved the opposite
    Sir Kenneth Branagh interview: 'My bones are in the theatre'

    Sir Kenneth Branagh: 'My bones are in the theatre'

    The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
    The sloth is now the face (and furry body) of three big advertising campaigns

    The sloth is the face of three ad campaigns

    Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
    How to run a restaurant: As two newbies discovered, there's more to it than good food

    How to run a restaurant

    As two newbies discovered, there's more to it than good food
    Record Store Day: Remembering an era when buying and selling discs were labours of love

    Record Store Day: The vinyl countdown

    For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
    Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

    Mary J Blige and Will.i.am to give free concert

    The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
    10 best tote bags

    Accessorise with a stylish shopper this spring: 10 best tote bags

    We find carriers with room for all your essentials (and a bit more)
    Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

    Paul Scholes column

    I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
    Jessica Ennis-Hill: 'I just want to give it my best shot'

    Jessica Ennis-Hill: 'I just want to give it my best shot'

    The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...