I've said it before (but it bears repeating): this Government likes complexity. The Financial Services & Markets Act was the longest piece of legislation ever put before Parliament. Gordon Brown's Budgets are growing like topsy, and are so full of a bewildering array of tax credits that you need an MA in accounting and law to unravel them. And now we have the Pensions Bill. To quote consultants Watson Wyatt, "at 248 clauses and 12 schedules, the Bill is difficult to pick up, let alone take in".
And it is not as if Andrew Smith, the excruciatingly dull Secretary of State for Work and Pensions, is giving business much time to digest this massive tome. He hopes to have the new system for regulating occupational pensions in place by April 2005 - less than 14 months away.
Like any big piece of legislation, it has its good points and bad points. Yes of course, if you are going to have occupational funds, there should be a pension protection scheme. And of course you should get everyone to pay towards this. And of course the amount they should pay should be risk related. But how do you measure the risks? And how do you determine the level of payments? And given that you have to start the fund before you get this system in place, how fair is it for everyone to pay a flat fee in the interim? And if you give a discount to make up for this perceived inequity, isn't there a danger that you start the fund with a deficit which you then struggle to make up?
I could go on. But rather than be mired in the devilish detail (of which there is clearly heaps), I'd rather attack the core issue. Why is the Government not willing to ask the central question: have occupational pensions had their day?
Like with-profits funds, occupational pensions have a long and glorious past. They worked well in the days of paternalistic employers and staff who worked in just one place in their life. But these days we have companies willing to cut payments to their pension schemes at a moment's notice (not to mention the Robert Maxwells of this world who have more devious plans), prompting debates about who owns the fund after all. And we have staff who flit from job to job (I, for example, have worked for seven different employers in 17 years) leaving a trail of bits of pension funds behind them.
For an employer, a pension fund is becoming more and more of an administrative burden, and this Bill will make that worse. For an employee, working out what you might retire on can be confusing and you feel like you are not in control of your destiny.
So scrap occupational pensions. Let employees choose a personal scheme - we already have low-cost stakeholder pensions available, so the cost will not be prohibitive - and pay the existing funds into them. Then employers will be obliged to put a minimum amount into the scheme each year - say 4 per cent of gross pay - and some companies will be able to entice staff by offering to pay more than the minimum. And employees will be able to have more of their salary paid into the schemes, and there will be tax advantages for this.
Of course there will be complaints. For example, what about problems at pension companies such as Equitable and Standard Life? Well, if the pensions are invested in unit-linked investments, then the instability of the provider is not an issue because you can just shift the money elsewhere.
There are also the potential dangers of pension mis-selling, though with low- cost pensions, this is less of a problem.
When Labour first came to power, it vowed to think the unthinkable. Now all it does is propose the incomprehensible. It's time to roll back the clock.
Boards should not be smug
What have Walt Disney, Shell and Hollinger (in all its forms) got in common? Well, their shareholders were complaining about corporate governance long before the proverbial hit the fans.
The fact is, companies tend to get away with bad governance when they are doing well (look at how tolerant the market is of the incestuous board structure of Comcast, or how the revolt against James Murdoch at BSkyB melted away). But when times get tough, a bad board structure is a stick to beat the directors with.
So companies should not be arrogant in the good times because they never know when they might need a bit of stored-up goodwill. Are you listening, Vodafone?Reuse content