Pension schemes rip-off is still alive and well

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The Independent Online
The insurance industry has done much to clean up its act since the pensions mis-selling scandal of the late 1980s and early 1990s, but as our front page story and personal finance pages show, the wider scandal of mis-sold pensions continues apace, and quite legitimately too.

There is an important distinction to be made here. We are not accusing the insurance industry of persisting with the sort of mis-selling practices that led to the present wave of compensation claims. In those cases, people were persuaded to opt out of perfectly good occupational schemes and buy private personal pensions when they would have done much better to stay put. If such practices were still continuing, that really would be a story.

But what our investigations do show is that for a very large number of people targeted by the industry - up to a third of personal pensions sold - these products continue to be a wholly inappropriate way of saving. In many of these cases the purchaser will actually end up losing money; they would have done better to have saved through a unit trust, PEP, or even a conventional building society account - and that's even after the tax breaks allowed on contributions into a pension scheme.

The reason for this is that like most life assurance products, the up- front charges are so high that early contributions count for nothing. The effect of this is to hit the very large number of people who for one reason or another are unable to keep up contributions for the lifetime of the product. Many of those who stop contributing after two years will lose money in the absence of very exceptional investment returns, and even some of those who persist with contributions for as long as five years will lose out.

In other words, personal pensions are a waste of money for up to a third of purchasers. What is more, in the case of "with-profits" pensions, the high penalties involved for those who fail to keep up with contributions are used to inflate the eventual returns promised in the literature to those who go the distance. Put another way, one class of pensioner is being ripped off to subsidise another; what it amounts to is a kind of well-meaning Ponzi scheme.

The wider conclusion to be drawn from all this is an obvious and oft- stated one - that personal pensions as presently constituted offer only a very limited solution to the growing problem of how to pay for retirement. A large number of those who think they are saving in an appropriate way for their old age are in for a rude awakening. Regulators need to do much more to curtail the industry's sharp and misleading selling practices. It's no good saying but it's all down there in the small print. Investors need to be told, unambiguously, in the nature of a government health warning on a packet of cigarettes. And there are big rewards for the first to come up with a fairer, low-cost product.

France's "non" to GEC's bid for a majority stake in the defence electronics firm Thomson CSF was perhaps to be expected from a country which has yet to throw off its de registre past. The surprise is in the unashamedly brazen way in which it was done. For GEC hasn't been ruled out on a technicality, or because its bid is too low, or even because it threatened larger job cuts than its two French rivals for the government-owned stake. No, GEC has been shut out because it is British. It's a decision that Charles De Gaulle could have been proud of, and lamentably, as far as the cause of European integration is concerned, France is probably within its rights in making it.

National defence is one of the few areas of commerce which is given a dispensation from the rules of the single market, which generally require all European member countries to be treated equally. Never mind that what France is doing is against the spirit of the European Union or Britain's new-found "special relationship" with France on defence matters. I thought that Britain and France were meant to be sharing military intelligence, strategy, technology and even equipment these days. Apparently only if France remains in the driving seat.

Pro-European though this newspaper is, it's enough fair to make the blood boil and can only add grist to the mill of those who cynically claim that full European integration is just an impossible dream. Further evidence of this backward-looking and nationalistic approach to industrial issues is provided by news that Aerospatiale is preparing to oppose plans to turn Airbus into an independent limited company.

Aerospatiale wants things to remain broadly as they are, with Airbus just a consortium of nationally controlled European companies. Aerospatiale is also vetoing proposals to appoint headhunters to find senior Airbus executives regardless of nationality. Traditionally the chairman has always been German and the managing director French.

Still, we shouldn't be too negative and jingoistic about all this. The door is being left ajar to GEC which is being encouraged by French officials to seek alliances or even form a consortium with one of the two rival French bidders for Thomson. This is progress of sorts and perhaps the most GEC could realistically have hoped for. All the same, it's no substitute for the root and branch consolidation of the defence industry which is going on in the United States. It is to be hoped that France eventually comes to see the sense of cross-border defence mergers, for the fragmented nature of Europe's defence industry needs addressing as a matter of urgency. Regrettably, it's plainly going to take time.

Two swallows do not a summer make and the Serious Fraud Office's two notable successes in the courts this week won't of themselves redeem this beleaguered organisation. None the less, the SFO has shown skill and some cunning in bringing the dreadful Abbas Gokal to book over the BCCI collapse.

Everyone tends to forget that the BCCI affair was the world's largest fraud, but after an initial burst of saturation coverage plus some good old-fashioned Bank of England bashing, the press rather lost interest in the whole thing. The reason for this is a rather unsavoury one. Not to put too fine a point on it, it was because those involved in the fraud and affected by it were largely people with funny sounding foreign names that nobody had ever heard of.

Most of us had heard of Mr Gokal, however, for he was a flamboyant figure on the London and international scene. Quite where the SFO got the information it needed to haul him off a secret flight from Pakistan to the US while on a Frankfurt stopover is something of a mystery, but it was a master stroke none the less, enabling one of the world's biggest thieves to be brought to justice.