Why have we been so late in facing up to the crisis about pensions? It seems extraordinary that the British, with all their expertise and experience, should have only now discovered they are facing a black hole, as revealed by last week's report by Adair Turner.
Of course, there is a basic psychological explanation: that most voters hate thinking about pensions, because they remind them of their own mortality. Lively young people have always had an aversion to talking about pensions, because they have the smell of decay and death. "The young man till thirty never feels practically that he is mortal", wrote Charles Lamb.
I can remember from my youth the dislike for those gloomy advertisements for insurance companies showing middle-aged men worrying about their retirement: "If only I had a pension with the Pru". The very word pensionable conveyed a deadly timidity: as the poet Louis MacNiece wrote: "Sit on your arse for fifty years and hang your hat on a pension".
And there were soon more rational arguments for not trusting pensions. Through the post-war decades, most people were better off buying a house with a high mortgage than setting aside regular payments to an insurance company. A house you could live in was a more convincing security than an insurance policy from a remote and anonymous company; and while pensions became less reliable, house prices went up and up.
There had always been plenty of reasons to distrust insurance companies for their ruthless salesmanship and misrepresentations, ever since Gladstone had attacked the Pru in 1864 and tried to set up an alternative Post Office system. Doubts kept recurring, and they surfaced again in the insurance scandals of the 1980s.
After 1988, when the Conservatives encouraged savers to opt out of occupational pension schemes, the Pru was once again under attack: three years later, the Securities and Investment Board found that nine out of 10 new pensions were based on incorrect or misleading advice - what was euphemistically called "mis-selling". And two years later, the Financial Services Authority accused the Pru of "a deep-seated and longstanding failure of management".
The failures of management were linked to the fact that insurance companies were run by the rarified profession of actuaries - highly-qualified mathematicians - whose skill rested on projecting past trends, including inflation, share prices and pensioners' longevity, into the long-term future.
They gave the appearance of certainty to an industry which - as later emerged - was subject to extreme uncertainties. And the companies developed an obscure language of their own which seemed designed to befuddle any ordinary policy-holder, and deliberately concealed the commissions which motivated their salesmen.
In the Seventies, the confident predictions seemed well founded, as the baby boom produced a productive new generation of earners and share prices kept going up. After 1973, the burst of inflation, which wreaked havoc with many individual savings, benefited the insurance companies which had invested in shares. But the golden age of pensions was already fading by the late Eighties, when the Thatcher government successfully brought down inflation. And when share prices collapsed in the new millennium, the basis of the companies' calculations also collapsed, as their funds could no longer pay for the pensions they had promised, and august companies like the Equitable faced disaster.
There was also a much more fundamental change in the behaviour of the British people, which the actuaries and insurance managers were slow to hoist in, or to explain. The British were living much longer, with fewer young earners to support them, and they needed immigrants to fill the gap. This huge demographic shift undermined the whole basis of the complacency about pensions: behind all the complicated schemes lay the obvious flaw: that old people could no longer rely on the earning power of the young.
It was only this week that the full predicament was spelt out by Adair Turner, who explained that the widening gap could only be filled by old people working longer, by raising taxes, or by more compulsory saving - or by all three.
But how can the ordinary voter be expected to choose? The British system is now, by general agreement, the most complicated in the world, with its mix of state and private pensions. And young earners, on whom the whole edifice depends, remain reluctant to think much about their own future security, particularly if they are immigrants unfamiliar with the British scene.
They cannot be very trusting of a system which has left so many pensioners now in the lurch, on the edge of serious poverty. They can hardly be expected to worry too much about the over-seventies for whom they may not have too much sympathy. And they will not take kindly to paying more taxes to maintain high index-linked pensions for long-retired ex-civil servants.
Paying pensions has relied more heavily on trust than any other expenditure. Uninformed people have to entrust their savings over their whole lifetime to people in government or companies about whom they know little. The suspicions are increased by the strange gobbledygook. The language of pensions, devised by actuaries and specialists, remains incomprehensible to most policy-holders, and is often deliberately obscure for disreputable reasons. Corporate directors pushing up their own pensions have concealed them by careful phraseology and circumlocution about emoluments, benefits and remuneration
More ordinary people can hardly be expected to make informed choices about where to put their own savings, in this graveyard of false expectations and broken promises. When they come round to thinking about their old age, they want, above all, to know that they are protected from company managers who are preoccupied with their own profits and self advancement. They have to look to independent bodies, like the Pensions Commission, to provide an honest picture of their real prospects. And they will still to look the Government, with all its shortcomings, rather than to insurance companies, as their ultimate guarantor in a civilised society.
Now, at last, the Government is having to face up to the problem, and its responsibility. The Work and Pensions Secretary, Alan Johnson, suggested this week that he was becoming more interested in the idea of universal pensions, based on residency in Britain, than on national insurance contributions: he was, he said, "veering towards being very positive about it".
But that would undoubtedly require more taxes, however concealed, to pay for it. For the truth about the black hole in pensions is that even if young people save more, and old people work longer, it can be only filled with help from the taxpayers. That is the main reason why the British people have been so reluctant to face up to the pension crisis, and why the Government` cannot really begin to offer a solution, with an election in prospect. But only a political party which is prepared to come clean about the true cost of pensions, and explain it in plain language, can be seriously trusted by the voters.Reuse content