Who is to blame for these useless pensions?

TODAY the Government will unveil a White Paper on pensions. It will concentrate on further protecting the 11 million of us who depend on our occupational or company pensions and who have occasional nightmares about the late and monstrous Robert Maxwell. It will be sensible, as far as it goes.

Prosperous, frank-looking men in suits will appear on the evening news bulletins doing what they do best, which is to ooze reassurance. And it will not work. At the other end of the tube, much of the nation will be watching with suspicion and resentment. For a terrible thing has happened to many people. The private pensions boom, hailed as an essential part of the victory of popular capitalism in the late Eighties, has let hundreds of thousands down.

It is a bad business. The mighty insurance industry is twitchy. So, too, are ministers. When a Labour MP, Paul Flynn, tried to raise it with John Major in the Commons last week, the Prime Minister virtually jumped down his throat.

They are right to be worried. The credibility of the financial and political elite of the Eighties is on trial. The people who are most at risk are the low-earners who were wrongly persuaded to leave occupational pension schemes or the State Earnings Related Pension Scheme (Serps) and buy into expensive private schemes. No one knows how many are involved, though no one denies the figure is large. What has happened to them is nothing short of criminal.

Some have been paying up to 90 per cent of their first year's premium in commission costs, administration, advertising and so on. They may be unknowingly frittering away a quarter of their hard-earned contributions in this way over the lifetime of a policy. Some may end up with no private pension at all.

Labour's spokesman Donald Dewar, who is not given to hyperbole, told the Commons recently that the treatment of these people was 'a scandal that is no less serious because it was so long unrecognised and no less cruel because many of the victims were, and probably still are, unaware of their plight'.

So who sold these people their useless pensions? Who is to blame? It was undertrained and desperate salesmen, working on commission, who sold the pensions, but it was the Government that failed to regulate the pensions mania properly and which should take most of the blame for what happened.

But ministers, surely, did not know at the time what would happen? They should have done. They were told, back in 1986 when private pensions legislation was going through. Time and time again these issues were raised with Sir Norman Fowler, then Social Services Secretary, with Tony Newton, then his number two, and with John Major, then his number three.

Example: Michael Meacher, leading for Labour, warned that personal pension charges of 20 per cent were common. Mr Major said that 10 per cent would be too high. He promised that 'increased competition from pension providers should greatly help to bring charges down' and anticipated Mr Meacher's 'discomfiture' on the issue. The cost problem has so far been worse than predicted: 20 per cent is standard.

Example: The Opposition and some Tory MPs were worried about misleadingly sold pensions. Mr Major assured them that prospectuses for pensions would be 'expressed in real, realistic and, I hope, understandable terms'. The Financial Services Bill 'will safeguard people against unscrupulous over-selling of personal pensions'. It didn't.

Example: The Government introduced a 2 per cent inducement, described by Labour as a bribe, to help to persuade people to opt out of Serps. If they merely paid the same to their new private scheme, this would prove to be a bad move. If they were persuaded to leave a half-decent occupational scheme, it would be a terrible one. Margaret Beckett warned that some people would be 'putting at risk not only themselves but their families'. Mr Fowler retorted that it was 'illogical to believe that someone is going to leave a good occupational scheme for the benefit of a 2 per cent incentive'. Tens of thousands - including 32,000 nurses, 58,000 miners, 27,000 teachers and 23,000 steelworkers - did just that.

Example: Still on the 2 per cent inducement, ministers were warned in 1986 by the National Association of Pension Funds that they were rigging the market and guilty of a 'gross misuse of taxpayers' money'. The cost was estimated in the committee at a 'huge' pounds 60m over five years. The association was brushed aside as partisan. Well, everyone was wrong about that: the Department for Social Security told me yesterday that the pensions boom had pushed the final cost of the 2 per cent inducement to pounds 1.3bn.

Ah, you may think, but these are terribly complex matters and hindsight is a powerful weapon. Listen then to one final Labour MP on the committee back in 1986. Frank Haynes, now retired, conformed to many Conservatives' nostalgic picture of what a Labour MP should be - a former miner with a foghorn voice, long on denunciation and not too bright. In short, they patronised him.

Here is what Mr Haynes told the current Prime Minister, surrounded in 1986 by his civil servants and his helpful advice from the pensions industry. It was 'crystal clear what is happening . . . The minister talks of consumer power . . . Who is he kidding? Consumers are said to have power in all sorts of ways, but what happens? The boys at the top get themselves together and fix things. They fix certain financial levels . . . Members of the Government represent people outside, as we do. They deserve to be kicked hard for their proposals in this Bill.'

I was not there that night, but I can imagine the chuckles all round. Mr Major dismissed his attack as vicious and unsurprising, and carried on giving assurances about private pensions for all. At one point Mr Newton chirruped: 'Everybody in his right mind should have one.' The Government went ahead with a pounds 1.2m advertising campaign to persuade people to opt out of Serps.

The Robert Maxwell scandal, which will probably dominate coverage of today's White Paper, was a terrible affair. Labour politicians will never be fully forgiven for the way they pandered to that crook. And the Government was right, back then, to see that personal pensions would become more and more important.

Many of us will do perfectly well out of the big gamble we enter into when we buy a pension. Though many have been fleeced, many will gain. And the regulatory system will be tightened up a bit. And money will be repaid: reputable pension companies are making provision in their accounts already. And across Whitehall and the City one can hear the sound of doors being slammed, bolted and triple-locked on empty stables. But in the end Frank Haynes was right, and Mr Major wrong.