The private pensions industry is a colossal financial scandal second only to the banks. It is a staggering fact that charges swallow up 40% of the value of a pension over its lifetime which must make this one of the worst deals ever in the market-place, even by the standards of the inefficient and greedy private market. And even when pension returns are falling sharply, the management greed continues to soar: between 2002-7 the charges levied by pension funds globally rose over 50% whilst the returns going from pension funds to pensioners over rthe same period actually fell three-quarters from 4.1% to 1.1%. Very few people, unfortunately, understand that an extra 2% annual charge (which is quite standard) can over the lifetime of a pension halve its value to savers. Ed Miliband is right therefore to commit to making these hidden charges transparent: Labour will require that charges each year (both in percentage and cash terms) as well as the projection of the sum lost to charges by the time of retirement must be provided to every saver.
But it goes deeper than that. The legacy of low returns, mis-selling and over-charging has utterly discredited the pensions industry. It has reached the point where millions of people are now retiring with such miserably low pensions, either just above or even below the poverty line, that it would have been in their interest not to put money into saving for a pension at all, because they would have received the same amount anyway from Income Support. That is why, with 29 million people in the workforce, the Office of National Statistics figures now show that 21 million people, three-quarters of all those in employment, are not putting money into a pension scheme. The government’s response to this is to force people to contribute to a NEST scheme, though once again it looks like becoming a nest-egg for the investment banks and fund managers hired to manage the scheme’s funds. The same applies to the so-called Pension Protection Fund where a large part of their annual levy on pension schemese disappears straightaway into the pockets of fund managers.
The sensible response to this whole saga of deceit, greed, and cosy financial institutions’ stitch-ups is to recognise that the private sector will never provide a fair and decent deal without so much regulation that they would bitterly complain. The real answer therefore is a high-value, mildly redistributive State pension scheme which would cover everyone (except those who choose to opt out into an alternative scheme of at least the same value). There is a good precedent to prove that such a universal scheme is workable and affordable - Barbara Castle’s State Earnings-Related Pension Scheme, by far the best scheme pensioners ever had until (perhaps for that reason – Tories can never allow publ;ic proivision to be superior to private) the Thatcherites destroyhed it in the 1980s.