Rage against the pensions machine

Iam sitting in front of the inside-out building that is the largest insurer in the world – Lloyd’s of London. Behind me are some of the largest pension and investment companies. Skyscrapers such as these are built to impress. They declare that size matters and that big offices and big names mean stability and comfort for their customers.

However, it is not a message that now holds much weight with investors. Over the past few months, I have been working on a Panorama investigation into what happened to the hopes of people who saved in private pensions. I have been speaking to people who have worked all their lives, saved for their retirement and have seen the value of their investments collapse. More worryingly, they have reached an age at which they cannot wait years for the market to recover. Instead, many will just have to swallow their losses.

It is an experience that has left them with a very bitter taste. Right or wrong, many people feel they have been betrayed by a system that has not delivered on its promises. Yet, if there was ever going to be an example of big City finances rubbing shoulders with the ordinary saver and working for their direct benefit, it was going to be in pensions. After all, these City institutions were investing our money on our behalf in the hope of creating financial stability for our retirement.

A few weeks earlier, I had been to Yorkshire to meet one of the programme’s case studies. Ian Hazell wants to retire at 65 on two thirds of his current income. For years he’s been putting money into private pensions, but now he’s worried. His Pep and Isa savings are worth a fraction of what they were two years ago. He’s also worried about selling his company. “It is a reasonably profitable, established company, but somebody’s got to find the money to buy it,” he says. “And where are they going to borrow the money from in the present climate? So, all in all, it looks pretty bleak on all fronts.”

I had to bear the news that a financial advisor says he will have to tear up his retirement plans. The news came as a bombshell. In order to retire at 65 on two thirds of his salary, he will have to find an extra £36,000 every year to invest to make up for the collapse in investment values. Even that is based on assumptions that the markets will now start to grow.

There is certainly cause for concern. The recent destruction of share values has meant that company pension schemes were collectively short of £242bn by the end of March, according to the Pension Protection Fund’s own figures. And that just measures problems with the company pensions sector. According to research produced by independent pensions consultant John Ralfe, local government schemes have racked up their own deficit of about £100bn.

Frank Field, the straight-
talking MP whom I met to discuss the challenges facing pension investors, told me he thought things were so bad there could be riots in the streets. It was a phrase that dropped from his lips with frightening nonchalance.

Another person I met was Janet White, who works at a health centre in the West Midlands. At 58, she fears she won’t get much of a state pension because she took time out to have a family. Her husband, Les, works in a company making nuts and bolts. It’s a tough physical job. At 62, he has spent most of his working life there. There’s no company pension there, so 24 years ago he took out a private pension. But, he says, the pension is due to pay only a third of what he was originally expecting. So, fed up with the pension system, the couple remortgaged their house and invested the money in a home in Spain. The idea was that they could retire there or use it as an investment. They made the investment just as property prices collapsed. They are now desperate to sell but even though they have dropped the price, they have not had a single viewing. The Whites feel they did what was asked of them. They invested in a personal pension and when that wasn’t doing well they borrowed money to invest in property, just in time to see that go down the drain too.

Ros Altman, an ex- government advisor who now campaigns on behalf of pensioners’ rights, paints a bleak picture. She believes the government faces a charge of neglect in what she calls “misleading the unsuspecting trusting public about the kind of investment returns that they can expect and even rely on to provide them with decent pensions later on”. She thinks 70-80 per cent of the population will find they have very little money if they want to retire at what we currently consider to be the normal retirement age.

Rosie Winterton, the pensions minister, meanwhile, told me the government had done much to safeguard the plight of the pensioner. She said the good news was that we were all going to live longer and healthier lives. The flipside of this, of course, is that there will be even more non-working pensioners having to be supported by fewer and fewer workers.

Adam Shaw is a BBC journalist and presenter of “Working Lunch”. He recently worked on the Panorama programme “Who Will Save the Savers?”

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