Menu Menu

The BHS Pension Scheme – a Q & A

25 July 2016

BHS could have obtained Clearance from Pensions Regulator before selling the company with its massive pension deficit

Employers must not treat pension liabilities as optional – they have people’s lives attached

Pensions Regulator has power to force previous owners to pay huge sums

The Select Committees’ Report on the collapse of BHS makes distressing reading.  The whole sorry saga has highlighted poor practices by many of the parties involved, but we must not forget that it is the loyal workers who are worst affected.  Many of them served BHS for years, working long hours to do their best for the business and have now lost their jobs.

What has happened to BHS workers’ pensions?  Workers need to know that their pensions have not disappeared.  The Pension Protection Fund is there to ensure that most of their promised pension will be paid.  This insurance is not funded by taxpayers, but by employers sponsoring all other Defined Benefit pension schemes, who pay a levy each year to contribute to this compensation.   Many years ago, when an employer collapsed, workers could lose their entire pension, but those days are now gone.

What is the Pensions Regulator’s role?  The Pensions Regulator must protect the PPF insurance arrangement from unfair claims and ensure that employers fund their schemes appropriately.  It oversees Defined Benefit pension funds, to make sure trustees and employers are looking after members’ interests and working towards paying the promised pensions.

Why did the Regulator allow the company to be sold when it had such a large pension deficit?  The Regulator does not have the power to prevent a sale, but it does have the power to force a seller to pay more money into the scheme after the sale, if the employer has not supported the scheme.  Our pensions regulatory system is deliberately designed to allow companies to be sold, rather than standing in the way, since this can often be the best way to safeguard workers’ jobs and the long-term future of the business.

Can employers just walk away from their pension liabilities when they sell their company then?  Certainly not!  When employers or trustees are facing difficulties, or when an employer wants to sell a business whose pension scheme has a deficit, the regulatory system provides for negotiations that will allow the employer to relinquish its future responsibilities for the scheme.  This is known as the process of ‘Clearance’, whereby the Regulator decides how much the employer should contribute to the pension scheme before it is sold.  Employers have to negotiate with the Regulator in order to work out what support they must offer to the pension scheme, before being able to relinquish responsibility for the pension promises they have made.

Why wasn’t Clearance obtained before the sale?  It is really puzzling that Clearance was not obtained from the Regulator before BHS was sold.  To grant such Clearance, the Regulator obviously needs to examine all the relevant information showing how the sponsor has supported the pension scheme in the past, what efforts were made to ensure its deficit was dealt with, and whether extra money should be paid in before selling the business on.  This would normally be part of a sale process, when a company has a large pension deficit, yet it seems the information requested was not supplied, so no Clearance was granted.  Without proper evidence, the Regulator cannot assess Clearance.   That means the employer cannot just walk away from any further responsibility for the pension promises, the Regulator will be able to force further contributions.  It is surprising that neither the seller’s nor the buyer’s advisers ensured Clearance was obtained before the sale was completed.  This could have allowed Sir Philip to ensure no further liability.

How could a business with such a huge pension deficit be sold like this for £1?  The pension debt appears not to have been taken as seriously as it should.  Pension debt is real, yet it seems to have been treated almost as if it did not really exist.  Indeed some of the pre-sale papers actually state that the business was being sold ‘debt-free’.  It is impossible to fathom how a business with a huge pension deficit could be called ‘debt-free’.  It is really important to ensure that other employers recognise they cannot just pretend their pension liabilities can be passed on to a new owner, without further responsibility.

Who did the buyer or the seller think was going to pay these workers’ pensions?  One cannot help wondering how the former owners and the new owners actually believed the promised pensions would be paid?  How did they believe the business would generate hundreds of millions of pounds to meet the liabilities?  The worry is that the liabilities were somehow not considered to be ‘real’.  But they are – and they also have people’s lives attached to them, so it is vital that sponsoring employers and trustees draw up plans to help meet the liabilities.

What happens next?  The Pensions Regulator is now investigating the sale of BHS and is gathering all the evidence that it would have requested for a Clearance process.  It is assessing whether the previous owners have further responsibility to put more money into the pension scheme.

Should the Regulator be able to stop businesses being sold if they have a large deficit?  Corporate deals can often be in the interests of the workforce and improve long-term business prospects.  Ensuring the strength of the employer to provide backing for the scheme in future decades can be as important as today’s estimated funding levels.  Preventing a company from restructuring might not be in the best long-term interests of the business or could force an employer into insolvency, or damagingly weaken its ability to trade.  This will not help the pension scheme.  Therefore, the Pensions Regulator stands ready to help trustees and employers manage their pension liabilities for the long term in a pragmatic and flexible way, but it does rely on employers co-operating and providing the necessary information for Clearance to be granted.  This could have happened with BHS, but it did not.

Is the Regulator strong enough to hold employers to account?  Yes, the Regulator does have strong powers.  Of course it is also possible that Parliament might want to give it further powers, after the results of its investigations are published.  It is important that pension debt does not stop businesses from operating effectively, and there is a delicate balancing act between allowing employers leeway to invest in their business in the short-term and ensuring they can meet their pension liabilities in the longer-term.  The Regulatory system has worked well so far, but that does not mean there is room for complacency.

Can the Regulator ensure more money is paid into the scheme?  Yes, if it believes that under the previous owner, the scheme was not adequately funded, the Regulator can require him to pay in extra sums.  In theory, it can require hundreds of millions of pounds to be paid.

Will members get their pensions quickly?  The Pensions Regulator is conducting its investigation into what happened with BHS and who is responsible for the pension deficit.  For the moment, every member is being looked after in the PPF Assessment Period, all pensioners will continue to receive their pensions and those reaching pension age will start receiving the PPF level of payment, which is around 90% of their promised pension.  Unless significantly more money is found for the scheme, it will remain in the PPF and its deficit will be covered, with members receiving PPF payments in future.

Will paying in more money mean the workers get better pensions?  Not necessarily.  Just paying in a few tens of millions will not give the workers better pensions.  Any amount less than required to cover PPF benefits will merely go into the PPF and will not give workers better pensions.  Sir Philip has said he intends to fix the problem and gave assurances of this.  I believe he means this and intends to pay more money to support the workers’ pensions.  However, members will only be better off if enough money is set aside to pay out more than the PPF level of pension.  This would likely mean hundreds of millions of pounds.  The problem here is that the assessment of how much is required is based on the cost of buying annuities, which is the most expensive (but most robustly guaranteed) way to pay promised pensions.  Employers would usually prefer to run the assets and try to earn investment returns, rather than paying so much extra for annuities.  In theory, Sir Philip could take back responsibility for the pension scheme and then underwrite its liabilities either in full, or at better than PPF levels.

Are there other ways of dealing with the pension scheme?  Sir Philip’s assurances that he intends to fix the pension problem suggest he is working on a strategy to achieve this.  In the past, he looked at a liability management exercise, known as Project Thor, which would enable scheme liabilities to be reduced, while still guaranteeing to pay better benefits than the PPF.  Our pension system allows such exercises to be carried out, but trustees are often nervous of using the flexibilities offered by this route.  He may now be working on a different version of this, designed to pay members’ pensions without going into the PPF.  It will, however, cost a significant amount of money to do this.  He has suggested that he does not just want to pay in money that will go into the PPF and not give his workers better pensions, so that suggests he may want to conduct another liability management exercise, designed to pay better than PPF benefits, without buying annuities, while still standing behind the scheme.

What would a liability management exercise do?  Pension funds often have members who only worked for the company for a very short time and do not have large pensions built up in the scheme.  The cost of administering these tiny entitlements can be significant.  The law allows employers to offer members a cash sum which can be used for another pension, or taken as cash in later life, in exchange for giving up their small pension in the scheme.  Many members may find this offer attractive and it can then help improve the funding for the rest of the scheme pensions.

Why would this be attractive?  If Sir Philip does indeed want to honour his pension promises to the BHS staff who worked for him loyally, as he indicated to the Select Committees, then he can do so.  It would require detailed negotiations with the PPF and the Pensions Regulator and would have a large cost attached.  But if the Regulator does decide that the pension scheme was not adequately supported under his ownership, then it has the power to force him to do so.  However, I hope that he will already be working on finding a solution that is acceptable for all.

What about the Arcadia pensions?  Sir Philip is still responsible for the Arcadia pension scheme.  Along with most UK Defined Benefit schemes, this also has a large deficit.  It is important that Arcadia’s advisers and trustees make sure there are adequate plans in place to address these liabilities.  I assume the Regulator is also looking at this and will be demanding further information as part of its ongoing inquiries.

July 25, 2016   1 Comment

Pension Protection Fund Cap

20 July 2016

  • Government must stop denying fairer pension compensation to long-serving staff of failed firms
  • Regulations are ready and DWP should lay them immediately
  • Further delay in increasing Pension Protection Fund cap is a major injustice to those affected
  • Small numbers of people but to each one this is hugely important


No justification for further Government delays to Regulations for loyal, long-serving pensioners: It is very disappointing that the DWP has failed to lay the Regulations that will allow pensioners to receive higher payments from the Pension Protection Fund.  A minority of workers in failed firms have lost more than half their pension payments and are waiting for increased compensation that had been delayed for years.

The Regulations are ready to be laid this week – further delays are simply unfair: Having pushed DWP officials to get the required Regulations ready to increase the PPF cap, they should be laid immediately.  All the necessary work has been completed and we planned to announce the regulations this week.  It is so disappointing that the DWP has failed to act, causing further unfair delays to those affected.

Compensation won’t be backdated so any delay adds to the injustice:  Those workers entitled to fairer compensation from the PPF have already been waiting for years.  It is true that the PPF offers good compensation to most people whose employer fails, however the PPF cap hits some pensioners’ payments significantly.  In many cases they lose more than half their pension and this was recognised as unfair a few years ago.  These higher pension payments will only begin from the date the regulations are actually laid, they will not be backdated.  So each week of delay can mean the pensioners losing hundreds of pounds which they can never recover.

These are not ‘fat cats’ but long-serving managers:  Those affected are not ‘fat cats’ with huge salaries and did not cause the company to collapse.  They can be middle managers who have been with the company for decades and worked really hard for their employer.

Legislation introduced in 2014 has still not started:  In 2014, Parliament passed legislation to increase the capped PPF payouts for long-serving staff who had been with their firm for more than 20 years.  I had many letters from MPs on behalf of the individuals who have suffered devastating pension losses, and I promised to act as soon as possible.

Small numbers of people but to each one this is a huge issue:  The Department says this is just ‘small numbers’ of people but that is no excuse for delaying measures that are ready and have been promised.  To each one of these pensioners, the loss is significant.

Tata’s British Steel Pension Fund would benefit if PPF cap is increased:  In the recent consultation on Tata Steel, one of the biggest issues highlighted has been the draconian reductions in pensions for longer serving steelworkers.  Increasing the PPF cap could reassure many steelworkers that the PPF will pay more of their expected pensions.

Increase in Financial Assistance Scheme cap too:  I had also received agreement to increase the Financial Assistance Scheme cap along similar lines to the long service PPF cap rules and hope that this can still proceed as well.

Don’t let political considerations hold things up:  It is a real injustice to allow the political fallout from the new Government to take money away from those who have lost so much of their pension through no fault of their own.

The Regulations must be announced now, before Parliament rises for the Summer:  I promised these members and their MPs that we would introduce the regulations as soon as possible.  They are ready now, so they should be introduced immediately.



PPF protects most members well, although not all:  Over 200,000 members of final salary-type pension schemes are being looked after by the Pension Protection Fund (PPF).  When their employer’s business has been unable to support their pension promises, the PPF insurance scheme takes over and pays them compensation, so they can receive much or all of the pension they were promised.  Pensioners over age 65 receive compensation at the 100% level, while most members below that age receive 80-90% of their expected pension.  However, some pensioners will lose far more – they could actually lose most of their pension under PPF rules because their payments are capped.  Not only is the amount paid out capped, but the cap itself reduces if people took their pension before age 65.

PPF cap can result in members losing most of their pension:  The significant pension losses resulting from the PPF cap were perceived to be unfair and potentially also in breach of EU legislation.  The EU requires member states to protect workers’ pensions on insolvency.  However, the PPF cap could result in long-serving staff losing most of their promised pension.  For example, for someone who took their pension at age 60, whatever their pension would have been, the PPF will only pay just over £29,000.  So if they were in line for a £60,000 a year pension, they will lose more than half their promised payments.  Many people who had worked for their company for many years and who had managed to accrue higher pensions have ended up losing the majority of their payments.  By contrast, other members receive closer to 90% of their promised pension.

Capped PPF rates for 2016:

Age at which pension starts Maximum annual pension from PPF (=90% of cap)
65 £33,678
60 £29,049
55 £25,573


For someone who starts getting their pension at age 65, the cap is £37,420.42 for 2016, and the person would receive 90% of that level which is £33,678 a year.  If they started receiving their pension at age 60, the cap falls to £32,376.75 a year and the 90% level they would be paid is £29,049 a year.  At age 55, the cap falls to £28,414.42 and the 90% level they would be paid is £25,573 a year.

July 20, 2016   Leave a comment

Pensions are too important to downgrade

18 July 2016

  • Potential dangers ahead for pensions if responsibility moves from DWP to Treasury
  • Could be threats to auto-enrolment
  • Must continue to address employer challenges in funding Defined Benefit schemes

It would seem that the role of Pensions Minister is being downgraded by the new Government.

What does that mean?

At the moment, we just don’t know, however it could be that this poses threats to future pensions and we must be alert to the dangers.  Pensions are vital for the long-term future of millions of people in our country.  We are in the middle of a major programme of reform and it needs to be guided carefully, otherwise there are dangers that pensions policy could be derailed.

What are the risks of downgrading Pensions in DWP?

Pensions Bill:  The recent Queen’s Speech contained provision for a Pensions Bill, which I fought really hard to obtain.  It is designed to protect pensions.  Currently, people’s pensions are at risk if the trust-based DC pension scheme they are saving in winds up.  I do hope the new Government will not put these important measures on hold.  Members’ pensions are not safe and the protections should have been put in place long ago, they are urgently required.  The new Bill would also introduce a cap on the exit charges on members’ funds when they want to move from one scheme to another.  At the moment, members can lose over 5% of their money just because they need to move scheme.  The new law would cap those charges at much lower levels.

Auto-enrolment:  Currently, policy responsibility for auto-enrolment lies in the DWP.  If the Treasury takes this over, there are risks to the programme.  Auto-enrolment is working really well, as millions of workers are saving in pension schemes for the first time, with the help of their employer.   We are establishing as the norm that every employer is expected to provide a pension for their staff.  This is a major change but is an essential part of the radical pension reforms that are underway.  The new state pension will have no more earnings related elements building up, so all the earnings linked retirement income must come from private pensions or other assets.  We must not let the EU referendum fallout derail this vital programme.

Defined Benefit Pension schemes:  At the moment, the DWP is responsible for our system of pension protection and there are over 11 million workers saving in Defined Benefit schemes who need a robust protection framework.  Funding levels of many schemes have deteriorated sharply, despite employers putting significant sums into them, and the Government urgently needs to address the challenges facing trustees and employers in connection with meeting their pension promises.  Work is already underway in the DWP which I had initiated last year and accelerated recently, but it is complex and needs careful handling.  A new Pensions Minister needs to engage with this work and manage the issues surrounding the British Steel pension consultation and the knock-on effects on all other schemes.

Pension Wise:  Responsibility for Pension Wise recently moved from Treasury to the DWP, to ensure all publicly-provided pensions guidance is located in one place.  As DWP was already responsible for the Pensions Advisory Service (TPAS), it made sense to put Pension Wise and TPAS together and form a new guidance body to help people engage with planning their later life income.  This was also due to be in the new Pensions Bill and I do hope it goes ahead, even if based within Treasury again, rather than DWP.  The public need help and guidance to understand how to plan their retirement income and customer satisfaction with the Pension Wise service has been very high.  The new Government must not let this be a casualty of the recent political upheavals.

Bringing private pensions policy under one roof

Last week I suggested to Number 10 that I would be delighted to help the new Government with a radical overhaul of pensions policy responsibility.  This could see all private pensions policy joined together in one place, under a Minister in the Treasury, while State Pension policy stays within the Department for Work and Pensions.  Indeed, I proposed this to David Cameron last year after he asked me to be Pensions Minister but he decided against it.

I think it makes sense for private pension savings policy to be run in one place, rather than being split across Departments.  I would have been happy to do that in the new Government but only based in the Treasury, not the DWP.  I wonder if there may be a move in that direction?

Why would it make sense?

As the new state pension means an end to contracting out, the role of the DWP in private pensions is much reduced.  Under the old system, millions of people were building a part of their state pension in a private pension scheme, paying lower National Insurance in exchange for giving up rights to part of their state pension.  This policy has ended, so the state and private pensions are now totally separate.  Therefore, it might be a good time to merge private pension policy together in one place rather than having contract-based private pensions policy resting in the Treasury, while trust-based pensions policy is made in DWP.  There are currently two different regimes, one for pension schemes set up under trust and one for pension schemes that are under contract law.  Bringing these policies together could help streamline and rationalise the rules, although there would be enormous complexity in doing so.

July 18, 2016   2 Comments

Maiden Speech in House of Lords

June 22, 2015   2 Comments

My farewell blog…


As most readers of this blog will know by now, I have been appointed Minister for Pensions in David Cameron’s new government.

Having spent so many years studying pensions, savings and retirement policy as an independent expert, I have the chance of working inside government to drive things forward.  It will certainly keep me busy and be a great new challenge.

Recent years have seen sweeping changes to our pensions system, changes which have started to move pensions in a positive direction for the first time in years.  I now have the responsibility of continuing and building on this momentum.

Believe me, I am aware of the hard work that lies ahead.  I want to make pensions work better, be more easily understood and more popular.  For me, pensions have always been about people, not just about money and I will always try to bear that in mind in my policy deliberations.

We must continue to ensure today’s workers can save for their retirement with confidence. Automatic Enrolment has encouraged more than five million people into a workplace pension – but we still have a further five million to go, as the system continues to roll-out.  Opt-out rates have been encouragingly low, but so are the minimum contributions and of course we will need contributions to increase over time.

This is hugely important – most of us can expect to live longer than ever before and must save for our futures if we are to enjoy our later years in relative comfort. I am aware of the challenges of making the second half of the Auto-Enrolment roll-out go as smoothly as the first, and am conscious that the particular needs of smaller and micro employers have to be considered.

It has been really encouraging that the youngest workers have been those least inclined to opt out after being enrolled. But we mustn’t become complacent – we need to do all we can to ensure protective measures are in place to cement people’s trust in their pension investments and encourage engagement.

We need to improve consumer protection and financial education to help people understand more about getting a fair deal and the value of saving. As successful as Auto-Enrolment has been up to now, we cannot just assume the job is done.

I believe passionately that the new pension freedom reforms have made an historic difference in allowing people to make the most of their hard-earned savings. They provide consumer choice for all, not just the wealthiest, rather than forcing most people into buying an annuity that may not be suitable for their needs.

I have been saying for years that we must trust people with their own money – and I believe most British savers will be responsible when it comes to making these long-term decisions.  With the help of Pension Wise guidance, improved financial education and ultimately advice, many more people can make sensible decisions for themselves. Encouraging more later life working, particularly part-time, also has the power to benefit many people if they want to increase their lifetime income.

Towards the end of the last Parliament, the Government announced that the new pension freedoms could be extended to those who already have annuities – I very much hope this will become reality.

Next April will see the roll-out of the new State pension. This long-overdue reform will see today’s complicated multi-tiered system of basic and additional State Pensions ultimately replaced with a clearer, fairer, single-tier payment.  People need to understand what is happening to the State Pension and we must try to explain it more clearly, despite the complexities of the existing system.

It will benefit many – but it is not yet fully understood.  Importantly, it will bring an immediate and significant reduction in the proportion of pensioners on means-testing.  I have long warned that we must reduce means-testing penalties, so that people, especially the poorer pensioners, are not penalised for past saving or for continuing to work longer if they wish to.  We need to incentivise private provision, rather than penalise it.

And this is all just the start. My in tray is ever growing and I can expect a busy and exciting time ahead.  Please give me some time to settle in, consider the landscape and work my way forward with the tasks that need to be done.  I will do my very best to help in as many areas as I can, but I cannot make any announcements at this stage and it is not reasonable to expect instant action.  It will take a while to assess what is best.

Due to the demands of my new role, unfortunately I won’t be able to maintain this blog for a while. But don’t expect to stop hearing from me!

From inside Government I intend to remain dedicated to championing the rights of consumers and standing up for fairness, while working closely with the industry as we all adapt to the changing pensions landscape.  Ultimately, it will benefit everyone involved in pensions if we can find ways to improve customer experience and satisfaction.

It’s an exciting time for the world of pensions and it is essential we continue the progress for today’s pensioners as well as for future generations. I will try hard to make pensions work better for people and hope to be able to make a real difference. I would like to thank all of you who have offered me your support, kind comments and warm words – I will do my best to achieve success.

May 17, 2015   4 Comments

My warnings in 2006 about excess public spending – the irresponsibility was clear even then

It is simply incredible to deny that the Labour Government spent too much

Failure to recognise or admit past over-spending is deeply worrying

This is an article I wrote in 2006, exposing the excessive Government spending under Gordon Brown. It was clear to me even back then, and is still clear now, that the Government was spending far too much. I warned that this was the wrong policy, but it continued.   Ed Balls and Ed Milliband were in charge alongside Gordon Brown at that time, presiding over this huge rise in public sector spending. The ONS figures in my article showed the spending was on consumption, not investment.  Please look at the table, which highlights the enormous increases in Government spending that occurred from 1999 onwards. It is astonishing that Ed Milliband refuses to admit or accept these mistakes.

The Government was spending far more money than the country could afford and continued doing so, despite good growth in the economy.  I warned that this was dangerously short-sighted, especially in view of the aging population which meant we needed to be saving more, not increasing borrowing.

The Labour Government did not understand how to control spending taxpayers’ money.  Taxpayers were working hard, paying their taxes and trusting the Government to spend that money wisely, yet unfortunately, despite constant talk of being ‘prudent’ and ending ‘boom and bust’, Labour actually spent far too much, not on investing in our future but on increasing public sector employment and pay and expanding tax credits, rather than trying to ensure a thriving private sector to boost growth.  With such enormous debts having been built up, it is vital that the private sector creates growth and employment to help repay past overspending.  The arguments that we have to end ‘austerity’ seem to suggest that we are living in a world where the ‘deficit problem’ is solved and hard-working taxpayers can support ongoing rises in spending despite the massive national debts that were left in 2010.  This is just not true.

The ONS stopped producing the Government consumption series after 2004, but excessive Government spending continued right up to the financial crisis, which left us without any reserves of taxpayers’ money to deal with the economic downturn that ensued.  Labour handed over in 2010 saying ‘there is no money’ – if only they had been more prudent, as they promised to be.  The same people who were in charge at the time are promising the same again, they seem to have learned little since then.  It is worrying that Ed Milliband has refused to admit Labour spent too much.  Furthermore, in 2012, he praised the Socialist policies in France which promised to increase taxes and Government spending.  Those policies have left the French economy with massive unemployment and negative growth.

By contrast, the UK economy has had good growth and a huge fall in unemployment, driving better prospects for the vast majority of British citizens.  It is a slow process to recover from such a major crisis, while also trying to deal with past debts, but the Government since 2010 has steered a path to ensure job creation is a priority while also being careful with public spending.  That’s not easy and they won’t always get it right, but it is vital to have that aim.  The millions in the middle, who want to work, also want to know the Government won’t be imprudent with their money again.

We need to face the truth.  I have voted Labour in the past many times, but I truly believe that the risk of putting Labour and the SNP in charge of our public finances will mean more borrowing that our children will have to repay and more spending in Scotland at the expense of England, Wales and Northern Ireland.  If the past over-spending is denied, then what will stop the same thing happening again?  To suggest that we can ignore the public sector debt and once again go back to spending money we don’t have is an illusion.

I do hope that the ordinary, sensible members of the British public will see the dangers and not take that risk.  The country is at a cross-roads, it’s time to decide whether we continue with policies that are trying to ensure job creation and private sector revival, or return to the old days of tax and spend to excess.  We shall have to see what the people decide.

Here is the article I wrote in 2006, please have a look at it and especially the figures for Government spending:

Demographic dangers for growth – Brown has been imprudent

Sunday Telegraph, Economic Agenda Column, published 27th August 2006. Edited highlights

full article link here:

The UK economy has performed impressively for an extended period of time and the Treasury has received praise for this achievement.  There has been much debate about the underlying causes of this sustained growth and whether it really is evidence of prudent economic management, but one factor which has not been greatly explored is the contribution of demography.  In fact, the economic effects of demographic trends are worth more serious consideration.

During the 1980’s and 1990’s, the economy benefited from a significant rise in the number of people of working age.  At the same time, the birth rate fell sharply so there were fewer children to support.  In addition, the number of pensioners has been relatively stable.  The fall in number of dependents and rising numbers of workers helped sustain consumption and bolster growth, giving a very favourable underpinning to economic performance.

This demographic boost, however, is soon set to unwind.  From 2010 or so, the number of pensioners will increase sharply, while the number of workers falls, so the proportion of the population in employment is forecast to decline.  As more people try to live on pension income, rather than earnings, consumption is likely to fall and the burdens on working taxpayers will rise.  Thus, the slowdown in the growth of the workforce and the increase in spending on age-related support, mean demographic trends will have adverse effects on economic growth after 2010.

These changes pose many economic challenges.  Of course, the trends have been in place for many years.  So has the Government been taking advantage of these ‘good years’ to lay the foundations of a meaningful response to dealing with the sudden rise in old-age dependency, thereby minimising the negative impact of the ‘demographic drag’?  Sadly, it seems to have squandered this opportunity.

Our pension system is not well structured for the demographic challenges, has the Government perhaps been preparing the economy in other ways for this looming problem?  For example, has the fiscal situation been reined in, building up surpluses to prepare for the forthcoming strains on public spending?  Sadly not.  Even though taxation has increased, public spending has increased even faster, so the budget deficit has worsened.



Total GDP Mkt Prices

y/y % change

Central Gov Consumption


y/y % change

Local Gov Consumption


y/y % change

Household Consumption


y/y % change






























































Source:  UK Input Output Analysis, ONS


Since 1997, the contribution to economic growth from both central and local government spending has risen enormously, while gross fixed capital formation and savings levels have declined.  Local and central government consumption spending rose sharply after 1998, outstripping total GDP growth every year by a substantial margin (see Table ).

Since 2000, over half the new jobs created have been in the public sector and the long-term pension spending commitments from unfunded public sector schemes are also enormous.

A strongly expanding public sector, with sharp rises in public (and private sector) borrowing has sustained economic activity until now.  Yet, the forthcoming demographic shift would suggest that we actually needed increased saving, not increased borrowing, to prepare for future needs.

From around 2010 there will be increasing numbers of people not working, an increasing proportion of the population who are not economically productive, fewer workers to create new wealth and a sharp rise in the numbers of pensioners struggling to manage on the inadequate level of UK state pensions and dwindling private pensions.  As a larger proportion of the population has lower incomes, consumption is likely to fall, and growth will suffer.

During years when the economy should have been building up national savings to prepare for the forthcoming demographic drag, the Government has actually presided over a sharp drop in saving and huge rises in borrowing. Economic policy has focused on sustaining growth in the short-term, by spending and borrowing, and has squandered the demographic boost that should have enabled more saving to prepare for the ageing population.  Far from prudent management, this suggests a short-sighted agenda of going for growth now and leaving the next administration to cope with the consequences of demographic inevitability.

Dr. Ros Altmann

August 2006


May 5, 2015   4 Comments

The most important election for decades – don’t gamble our future on policies that failed in the past

30 April 2015

This is my honest assessment of the economic and political realities facing the UK

Having given my views on finance and economics for years, I am writing this blog to set out some thoughts on the upcoming election.   I have previously voted Labour and LibDem and each party has some excellent politicians, but the current economic and political realities lead me to conclude that the future of the country I love is at risk if the Conservatives do not form the next Government.  I am not ‘tribal’ in my political allegiances.  I don’t blindly follow a particular party or ideology.  But putting Labour back in charge at this time could be disastrous for the United Kingdom.

Let’s look at the reality, not the rhetoric: I write this even though I know I will be criticised in some quarters for being ‘political’ – which seems to be a derogatory term nowadays, although I’m not sure how one can give views about party policies without being political.  Giving my carefully considered assessment does not change me as a person, nor my values of financial fairness and social justice and my concern for ordinary British citizens.  I hope you will consider the evidence.

The economy:  In 2010, the UK was saddled with a huge deficit (like that of Greece today) and high unemployment.  Now, five years later, the deficit has halved as a share of our economy, we have had growth when the countries around us have been struggling and most importantly employment levels are the highest ever as private sector job creation has boomed.

The policies have worked:  Other countries and the IMF recognise our economic strategy is working well.  However, Labour did not understand.  They said the policies which have created two million new jobs would be a disaster.  Indeed, in 2012, Ed Milliband praised the policies of the new Socialist Government of Francois Hollande, saying he wanted to emulate them over here.  They have actually produced rising unemployment and economic weakness in France.

The Conservatives have proved to be the party of the workers:  Just look at the evidence – falling unemployment and record employment levels.  Unemployment was 2.5 million in May 2010, it is now under 1.9 million.  Most of our EU neighbours still have unemployment rates well above ours.  The number of people claiming JobSeekers Allowance was 1.5million in May 2010, it is now around half that level (0.79m). The employment rate has climbed to the highest level since ONS records began in 1971.  The UK has created more new jobs since 2010 than the rest of the 27 EU countries put together. And two million more apprenticeships.

Nearly all new jobs created are full-time (four out of every five are full-time jobs):    Some commentators have complained that this employment record is still not good enough – ignoring the realities all around us.  Focussing only on negatives seems to be deliberately undermining the real achievement that this jobs boom represents.  Yes, wages have risen only slowly but that will happen when recovering from such a deep economic downturn.  It takes time.

The task is far from finished:  Listening to some of the other parties, it seems that they believe the economy is fine now and we can return to the days of borrow and spend.  That is an illusion.  Promises that they can spend more, borrow more and still keep growth and jobs going are not credible.  We need continuity to ensure the benefits of recovery spread more widely to everyone.  Without growth and a thriving private sector, we cannot repay the debts we owe and our children will be left to pick up the pieces of today’s failure to recognise reality.  Changing course now when the economy is not yet healed is too risky.

Other parties are taking growth for granted – what is their plan to boost private sector employment and pay?  Labour and the SNP have failed to set out a strategy for helping businesses create more jobs and afford to pay higher wages.  Redistributing income and increasing regulation will not pay off past debts or create growth.  Higher pay levels depend on a stronger economy, but the other parties seem to be taking growth for granted.  It may sound enticing to promise more Government expenditure, but if growth is lower we all lose.  It is vital to find a good balance.

Financial fairness for all:    British people want to know that their earnings and savings can benefit themselves and their families as well as wanting to help those in our country who are struggling.  That requires policymakers to strike a careful balance.  Government spending is your money, it comes from the taxes you pay.  Being part of a caring but fair community is important, but it needs policies which will deliver growth and improved prosperity so we can afford to finance public spending.

This is a fantastic country but it still faces huge challenges:  Now is not the time for change, now is the time to continue the policies that are working.  Being enticed by talk of returning to more public spending and borrowing we will be putting all the progress at risk.  Which party leaders are offering the best prospects for our country as a whole?  Those who have created 2 million jobs, 2 million apprenticeships and record employment.  Or those who handed over saying ‘There is no money’?

This is my honest assessment:  I stress that I’m saying this as someone who does not have a blind allegiance to any one party or ideology.  I care about the future of this country and this is how I genuinely see things.  I have set out a logical rather than ideological narrative and hope you will consider my thoughts in a spirit of genuine open-mindedness.


April 30, 2015   1 Comment

An opportunity for me to help millions of ordinary British savers

19 April 2015

  • Review of financial fairness and extending financial guidance to younger savers
  • Minister for financial consumer protection and financial education

For so many years I have been an independent consumer champion, working on making finance work better for customers, exposing injustice and helping ordinary savers understand finance.  I have focused on policy, rather than politics, trying to make finance work well for the many, not just the few.  I have worked with all the major political parties and have maintained my neutrality but I want to let you know that I have now decided that the best way to achieve what customers need is to become more directly involved.

The following is from the Prime Minister’s official release:

“Ros Altmann to be a Minister in the next Conservative government – leading a review of financial consumer protection and financial education

Today the Prime Minister is announcing that consumer champion and pensions expert Dr. Ros Altmann is to be nominated as a Conservative peer and will be appointed as a Minister with responsibility for financial consumer protection and financial education in a Conservative government.

Improving dignity and security in retirement for working people lies at the heart of the Conservatives’ long-term economic plan.

Following the biggest pension reforms in a generation, one of her first roles will be to lead a review of financial fairness for consumers.

The Prime Minister said:

“What we’re doing is taking the country’s leading expert on pensions, on savings, on financial education, Ros Altmann, and saying that if we’re re-elected, she’ll be at the heart of government, making sure we complete this great revolution where we’re giving people much more power to save, to access their pension, to pass their pension on to their children, because we want to create a real savings culture in our country for everybody. Not for the rich at the top, but for everybody who saves or has a pension.”


So, I will have the chance to work from inside Government, in a Ministerial role that will straddle both the Treasury and the DWP, on consumer protection, financial fairness and financial education.  I believe that working in both Departments is important in order to have joined-up policy.

Following on from the pensions and savings reforms introduced in the past year, it is so important to ensure that customers are treated fairly by the large financial companies. I also believe it is vital to roll out financial education to everyone, not just those nearing the end of their working life.

I will carry out a major review of financial fairness for consumers, including:

  • charge caps for pension products to protect savers from excessive fees;
  • improved rights for older consumers especially in the mortgage market;
  • promoting competition and innovation for all savers;
  • developing the Pension Wise service to offer financial education and guidance to working people at every stage of their lives – not just nearer retirement

I do passionately believe the new pension reforms – and trusting people with their own money – are an essential step to helping everyone make the most of their hard-earned savings.  For too many years, consumer rights have played second fiddle to the interests of large financial firms, but the new pension freedoms show that the Conservatives have put the interests of British savers first and that is a real game-changer.

In the 2014 Budget, they stood up to the large companies who had too often taken advantage of their customers and have paved the way for a new environment for long-term savings, which does not force people into buying products that may not be suitable for their needs. They have created the opportunity for working families to save more if and when they can, knowing they will be allowed to use the money as best fits their circumstances.

There are some who say only the financial industry, or Government, know best what people should do with their money and that most people can’t make sensible decisions for themselves. Well, I disagree. Yes, some may be reckless but I truly believe most British savers will be responsible and can be trusted to make the right choices. They will need protection, they will need guidance and many will also need advice, but that is where I hope I can make a difference.

It will be my job to review this and ensure customers get a fair deal – I am delighted to be offered the chance to do so.

I want to see long-term savings work better for ordinary families who put their hard-earned savings aside for their future, which is so important to restoring the strong British savings culture. Those with the largest pension savings already had the freedoms and flexibility that are now open to everyone, but of course we must ensure financial services firms move with the times.  This will mean a new mindset from providers and potentially further Government action to protect savers better.

Of course it won’t be easy, but I’m determined to make a difference. I will remain a champion for consumers, but also want to work with the industry to adapt to the new environment. I can do this far more effectively from within Government than as an independent outsider.

I will also continue to champion the need for fairness and inclusiveness for women and for customers of all ages – which is where I believe financial education and guidance can be particularly powerful.

The savings and pension reforms are only a start, the next steps are yet to come. Making financial services work better for the customers they are trying to serve will ultimately also benefit the industry itself. We have strong, vibrant financial firms who are world leaders, but their long-term success will require a new approach. Modernising and adapting are vital. Some are already recognising this and I look forward to engaging constructively with them. Too many, however, are still relying on past captive customers being locked into expensive, inflexible products. Such practices need to be abandoned, in favour of more customer-friendly approaches, that will bring far more money into long-term savings in future.

I hope to help this happen.

April 19, 2015   1 Comment

Pension Freedom Day is great news for pensions – here’s what you need to know

6th April 2015

  • Pension freedom is great news for pensions – new rules make them more user-friendly, now industry needs to help customers benefit from the changes
  • Don’t be in a rush to take money out of a pension and suffer the tax consequences
  • I believe most people will be responsible with their money, I trust people
  • Pension Wise is there to help – make sure you use it 030 0330 1001

From today, April 6th 2015, the rules governing the UK pension system will change dramatically.  I believe most people will be careful and use their pension savings wisely, to suit their own needs.  Those who have been responsible enough to save for their retirement are unlikely to suddenly spend it all just because they can.  They will want it there for later life.  Indeed, these new freedoms – and the removal of the 55% pension tax on death – should mean more money coming into pensions and staying in pension funds for longer.  That should mean less pensioner poverty in future.

Flexibility makes pensions more attractive: Instead of being one of the most inflexible pension systems in the world, the new rules enable pensions to be more user-friendly, making it much safer and more attractive to save in a pension fund.

Government won’t tell you what to do with your money – will trust you to know what’s best for your own circumstances:  Whoever you are, you should – at least in theory – have control over your pension money, rather than the Government dictating what you must do with it.  People much prefer to have control and flexibility.  (In practice, many pension firms may not allow you the new freedoms and, although that is very disappointing, you should usually be able to move your money to another fund (although again your pension firm may penalise you for doing so).

Old restrictions being removed:  The old rules meant that, unless you had huge (or very small) amounts of pension wealth, your pension money was locked in for life.  Once you had put the money in, you were severely restricted in the way you could take it out.  And any money left in your pension fund when you died was taxed at 55%, so you really didn’t want to have too much in there. This is all changing now.

Not forced to buy particular insurance products, can keep money for later life and pass on what’s left tax-free:  You will not be forced to buy a specific product with your pension and any money left when you pass away can go to your loved ones tax-free – no inheritance tax and no income tax – as a pension for future generations (if you die after age 75 they will only pay tax from next year if they take the money out).  These new rules make pensions far more attractive than ever before, and should mean more people saving more money in pensions, which can support them better in later life.

Pension income from annuities has fallen sharply – now people won’t be forced to buy, can wait:  Under the previous inflexible system, the law said that, as soon as you wanted to take even a tiny sum out of your pension fund in later life, you had to ‘secure an income’ which, for most people, effectively meant you had to buy an insurance product called an annuity.  This meant an insurance company took your pension fund and promised to pay you a guaranteed amount of income for the rest of your life.  That amount was usually fixed for ever, with no chance to change it and the amount of income the insurer promised to pay you was determined by the interest rates it could earn on your money and how many years it was expecting to have to pay you for (i.e. how long you were expected to live).  As interest rates fell and life expectancy forecasts increased the amount of pension income you received from an annuity declined sharply, leaving many people disappointed with their pension.  Now they have a chance to wait longer before deciding what to do, leave the money invested and either hope that interest rates will rise again, or that investment returns will allow the fund to grow and eventually get more pension.  Many people were buying annuities at much too young an age and it is much better to wait, especially if you have other pensions or are still working.

New rules give same flexibility to everyone as were already enjoyed by wealthiest – that’s fair: If you had a pension fund worth around £100,000 or more, you were allowed, under the old rules, to put your money into an income drawdown product, but even with this product, which let you keep your money invested rather than locking it all into an annuity, the Government imposed severe restrictions on how much of your fund you could take out each year.  Those with the very largest pensions (total pension income over £20,000 a year) were allowed to take all their fund out as cash if they wanted to even in the old system.  Now the same rules apply to those with smaller funds as were already allowed to the wealthiest.  I believe that is fair.  Why should the Government assume that those who have less money are not capable of making good decisions?  Everyone should be trusted to spend their pension money as suits them best.

Unfortunately, many pension firms or company schemes won’t let you have the new freedoms – they’ve been slow to act:  Not all pension companies or company pension schemes are going to allow you the freedom the law says you can have.  Although some companies have geared up to serve their customers, many will not let you just take your money out if you want to, they may force you to pay penalties to switch to another firm.  They claim the reforms have been introduced too quickly and they haven’t had time to adjust.  Certainly the Regulator has been slow to clarify the precise requirements, however the companies have known about the freedoms for 13 months.  Most industries have to adjust to new circumstances rapidly, they can’t expect to the world to stand still for them.  For example, when oil prices halved in a month, companies had to adjust.  Many pension firms have not invested sufficiently in customer service and new systems that are needed to be adaptable to the modern financial world.

Fears of people cashing-in pensions and falling back on means-testing are overdone due to New State Pension reforms:  Some have commented on fears that people will simply cash in their pension fund and ‘throw themselves back on the state’ leaving taxpayers to pick up the bill for more means-tested benefits.  This fear is hugely exaggerated in my view, particularly in light of the radical reforms to the state pension which start in April 2016.  In the previous system, nearly half of pensioners had income below the Pension Credit means-testing level so any private income you had (whether from other pensions or from continuing employment) was penalised in the means-test, meaning state pensions undermined private pensions.  The New State Pension aims to ensure most people’s pension income is above the £150 or so means-tested Pension Credit level, so any private income should no longer be penalised as before.  There will be a transition period but for younger people the aim is that state pensions provide a safe base on which private pensions can be built, without penalty.  In other words, in later life, if you cash-in all your pension savings, you will just have to live on the state pension of around £20 a day, and should not expect more from taxpayers than someone who has kept their pension savings in tact to see them through retirement.

Fears of scams are valid but fraudsters have always been there, people must be wary:  Clearly there are risks that people will fall prey to scammers or fraudsters, which is why they need to be warned clearly about the risks.  If you are called, texted, emailed or written to by a firm you don’t know, offering to invest your pension, don’t do it!  Check them out carefully, call Pension Wise or call the police if you think you are being scammed.  The Regulator should be introducing a nationwide campaign to warn people of such frauds and setting up a hotline to report any suspicious activity.

Pension Wise guidance vital to help people with the new options available – already has thousands of appointments:  The Government’s new, free impartial information and guidance service starts today too.  It is there to help pension savers with their new freedoms.  In the past, most people could not really do much as they were forced into an annuity anyway, but now with more flexibility, it is vital they understand what is going on. So Pension Wise guidance service has a really important part to play in helping people understand what their options might be under the new system.  In particular, the advantages of leaving money in your pension fund and the tax implications of taking money out are two of the most important issues to understand.  Call Pension Wise on 030 0330 1001 to discuss these options and your situation.  It should help and you can have an appointment on the phone, face to face or just use the online information guides.

Seeing a financial adviser is the best option if you can – paying for this can save you money:  Most people would pay a lawyer or an accountant to help them with a complex legal or tax matter.  Pensions are just as important and it will usually be worth considering paying for a specialist expert to advise you on what’s best to do with your pension.  Paying a financial adviser can save you money in future and don’t think that using an on-line information and broking service will mean you don’t pay anything.  If you buy a product, you may well end up paying quite a bit in commission – indeed even more than if you used an adviser, so don’t be put off just by having to pay a fee.  Think carefully about getting the best chance to use your pension wisely.

Much better than the old inflexible system – and much fairer:  The new pension system is much better, especially for people with average sized pension funds, than the previous regime.  Rather than being forced to buy an annuity, which may have paid only a few pounds a week and which normally had no inflation linking and no pension for a partner, you should now be free to take some out and leave the rest invested (which you could not do before) or spend it on repaying debt.  If you have other pensions, you could use one of your funds for important spending, rather than having to give it to an insurer in exchange for just a small weekly sum.  You can use your pension savings to suit your needs, rather than those of the pension providers.

Today is not the day you must do anything – significant benefits of doing nothing with your fund: You may also need help to understand the benefits of doing nothing for now.  Making a proper financial plan can clarify whether you should leave your money invested, spend other funds, rely on other pensions or work for a while longer.  You can help yourself (or work with a financial adviser) to avoid spending your pension money too soon.  The longer you leave it, the more potential for growth.  After all, you’ve saved hard for a pension that can see you through retirement, so you probably need it there for later life.  If you need the money for unexpected spending, or perhaps for health or care needs, once you have spent it, it won’t be there later, but keeping it longer means you can call on it when you really need it.

Triple tax whammy of taking money out of pension fund too soon:  Make sure you understand the tax implications of taking your money out of your pension fund.  By spending your pension money too soon, or taking cash out to use for other investments, you can face a triple tax hit.

  1. You lose the tax benefits of keeping the money in a pension (no income tax, no CGT and no inheritance tax).
  2. Any money you take out (beyond your 25% tax-free cash) will be taxed as if you had earned that sum during that tax year – if it is a large amount you could lose 45% in tax
  3. Any new investment you make will be taxed, such as a buy to let property on which you will have to pay income tax on the rent and capital gains tax on any gains, as well as inheritance tax when you pass away.

So don’t rush into anything.  This is just the first day of the new freedoms – there is plenty of time to make decisions and make sure you do the right thing with your hard-earned savings.

April 6, 2015   3 Comments

Pension jargon explained for April Fools Day

With grateful thanks to Simon Grover of ‘quietroomtweets’ for his April Fool take on pension jargon – hope you enjoy it. Source is here:

With less than a week to go before the new ‘pension freedoms’ take effect, a Government body is today announcing a new tool to help explain the changes.  A Pensions-Related Information Lexicon is the latest publication from the Financial Office Of Language (FOOL), a quango that brings together experts from the world of business communications to help explain pensions to normal people.

Absolut return – Strategy that aims to give the same return regardless of how much vodka your investment manager has drunk

Annuitease – Income for life that’s less than you’d hoped

Benefishiary – Pet who inherits your money

Bond – Type of loan that leaves you shaken but not stirred

Commutable pension – An income for people within the M25

Default – Responsibility for a bad investment decision

Defurred – Scheme member who’s been stripped of their protection

Drawdownton – To use retirement savings to buy a stately home

Growth – Usually a good thing. But check with your doctor, just in case

Lump sum – An amount approximately equal to the value of a sugar cube

Penshun – To refuse to think about what you’re going to live on when you stop work

Pension pot – Drug taken to stop worrying about retirement

Pension Whys – Pension questions that your ‘guidance specialist’ isn’t allowed to answer

Retired – Relating to inability to work due to exhaustion

Trivial commutation – A board game for people who can’t afford to do anything more interesting

Winding up – The experience of listening to politicians with final salary pensions talk about how we all have to save for retirement

And here are a few of my own:

Ben-e-fit – Man who suffers from extreme shock when discovering how inadequate his pension savings are

Deaficit – Not listening to warnings about pension underfunding

De-find Contribution – Discovering money you put into a pension many years ago

Discount rate – interest rate so small it might seem negligible but cannot be ignored for pension purposes

Equitys – Acting professionals

Sirplus – large pension entitlements for top executives

Truss-tees – Pension savers who invest in turkey farms and golf clubs

Yield – giving up hope of earning good returns



April 1, 2015   1 Comment