Rachel Stevenson: Brown's decision may be a mortgage-market loser

The "not yet" decision on the euro this week, as we can see on these pages, means the closest we will come to the currency is changing our holiday money. Anyone who has been in Europe recently, cannot fail to have noticed how little they are getting for their pounds these days. And it seems, the closer you get to Europe, the poorer the exchange rates become.

But more interesting in this week's announcement was Gordon Brown's reliance on the quirks of the UK housing market as a reason to stay out of the single currency. This raises interesting questions about what happens to the mortgage market going forward.

David Miles, professor of finance at Imperial College, London, is investigating long-term fixed-rate mortgages on Gordon Brown's behalf. The professor and the Chancellor think long-term, fixed-rate deals will bring stability to household finances, and make us less vulnerable to short-term rate rises.

It is highly unlikely the Government will step in to help finance them, so lenders will struggle to find a cheap way of offering fixed rates for longer than five years.

While they are trying to get round the bugbear of high redemption penalties to appeal to the more flexible borrower, this market is always likely to remain niche, appealing to those who live in fear of soaring interest rates. Cheshire Building Society has sold 100 in a year and found those who take them tended to be aged 38 and over, which tells you something about the people they attract. Long-term fixed rates could become popular as a part of people's loans, but it is hard to see how they could ever be as competitive as short-term ones.

* If you contribute to a company pension scheme, you should be sleeping a lot safer in your bed this week following the Government's plans to protect your retirement promises. About time too.

The Government has been under pressure for some time to help safeguard pensions and restore confidence in saving as companies shut their pension schemes at an alarming rate.

But it will not be stumping up to meet any shortfalls should a company go bust and leave its workers empty-handed. Rather, companies are being asked to pay in to an insurance fund that will bail out schemes if they get in trouble.

While ensuring companies stick to their promises can only be a good thing for those worried about ending up with nothing to show for their savings, it is another matter whether this insurance fund will work in practice.

There is, of course, the moral hazard that comes as a consequence of setting up a pooled insurance fund. Is it right to ask fully funded strong companies to subsidise those that are weak and badly run? And there is always a danger weak funds could allow things to get worse, in the knowledge the tab will be picked up everyone else.

Companies are questioning how the costs of running a fund can be kept under control, when the potential liabilities they are being asked to meet are up to £300bn, the estimated shortfall in pensions. They already seem eager to walk away from providing pensions to their staff and this could push many more firmly in that direction.

But to counteract this, there was good news for anyone worried that their employer may be about to close down their final- salary scheme while still fully solvent. At present, firms can get away with paying people lower benefits than they may have expected, but new laws will mean they have to fully honour what they have promised.

Another good move from the Government this week is the change to how a pension fund's assets are shared when schemes are closed. No one can fail to have been moved by the plight of workers at UEF and ASW. Many staff at the engineering companies, which are in receivership, have paid in to their pension scheme for nearly 30 years only to find they will get a fraction of what they were expecting.

The present rules dictate that workers who have already retired get first call on the assets of a pension fund and their pensions are paid in full. Everything else is divvied up between the newly jobless workers, regardless of how long they have paid in to the scheme. The assets will now be shared out more fairly.

There were some other gems from the Government that are worthy of note. It will reduce ridiculous rules of company pension schemes so that if you work for a company for only a short period, you can transfer the full value of your pension pot to your new employer when you leave. And if your company is taken over by another, your new employer will have to match your pension contributions.

These issues go to the heart of the Government's saving dilemma. It wants to shift the burden of responsibility for pension provisions to the private sector, but while ASW and UEF scandals hog the headlines, that message is lost. You can forgive people for being a reluctant to join the pensions party when there is no guarantee you will get the cake you were promised on the way out.

This week's changes are worthy, but there is still a far wider problem the Government, the pensions industry and employers, need to address, how to get people saving in the schemes in the first place. More security will help restore confidence, but it will not go that far.

r.stevenson@independent.co.uk