ΒιΆΉΤΌΕΔ

A good clear article on a complicated and not-really-that-interesting subject. "mod parent up", as they say.

I do think the tax charge on pension funds was too extreme...and it is likely to cause damage now because of the strain on pensions generally.
However, there is also another issue that the government and the FSA are choosing to ignore; the right of an individual to shop around to purchase the best annuity at retirement age, i.e. using the open market option. Differences in annuity rates can be enormous, especially if someone has, or has had, a serious illness. In some cases, annuities could be up to 30% higher, and remember, this is an income for life. Making the public more aware of this simple, but important, message, could make a big difference to the lives of many in retirement. Papers have been published on the matter, see the Cass Report, March, 2006, which quite clearly illustrate the failings in the system allowing individuals to end up with lesser incomes in retirement than they could achieve. The purchase of annuities is rate driven, with some life companies vying for the business. How many people know that ?

Disagree completely with you.
For your second point, I would say that Brown was not driving the car, he was driving the 44ton lorry that crashed into it. As the pensions currently have an estimated Β£75 billion shortfall, and the total tax so far from this has been Β£50 billion, it is far to say that this measure has been the significant reason for the current pensions crisis. The Β£50 billion above does not include the returns that the investments would have received either (probably at least another Β£25 billion, estimates of up to Β£50 billion have been made).

For the first point, this was not a way of simplifying corporation tax (Brown has never simplified any tax), it was a way to grab Β£5 billion pounds a year without being noticed.

For your follow up article, might I suggest how the NHS is in excellent financial health or how the the Olympics budget has not tripled due to Government inefficiency but down to profiteering by greedy companies and individuals who own land in east London.

In other words, Gordon took the gun and fired the bullet, but it's our fault for not dodging out of the way.

And then we move onto that other, more audacious, robbery - the theft of millions (billions?) paid in ACT, now kept by the government with only the tortuous shadow ACT regime to retrieve it.

Your assertion that your analysis does not allow us to say that Brown didn't destroy the pension system because it was open to us to put more in to fill the hole is quite staggering and doesn't make you sound politically neutral, rather an apologist for him. By all accounts, the value lost from typical money purchase pensions has been catastrophic.

I'm a bit confused. Is this an editorial or a news article?

All these tax rises wouldn't be half as bad if this Administration had the first clue about how to improve the productivity of the Public Sector. As it is, NHS and Education productivity is flatlining, whatever the spin doctors would have you believe, and the billions that could have smoothed the transition to more market-based (and efficient) Health and Education sectors have been pretty much wasted. And that along with the political capital as well. How very sad - no wonder everyone wants an election / or leave the Country!

hmm.. It's intereseting that Evan states that it was easy to put right what gordon had wrought "just invest more in your pensions schemes", be you corporate or personal. However, that assumes that you have the money to make up for what Gordon Brown has taken. This was Β£5billion every year, some companies could afford it others couldn't. The people working for those companies that couldn't did suffer through no fault of their own but every fault of the Chancellor.

Β£5 billion a year over 10 years has value with interest of around Β£100 billion this a sizable sum when compared with total values of funds of around a trillion.

Mr Brown has not completely restored the old classical corporation tax system. The imputation scheme is alive in the form of the current 10% notional tax credit that is attached to UK dividends (and the amendments to foreign dividends announced in the 2007 budget).

The way forward now is to allow pension funds to reclaim the 10% notional tax credit back on dividends - not as great as the 20% that funds could claim back prior to 1997. But then it used to be a 25% reclaim for funds until Mr Nigel Lawson had a similar thought to Mr Brown.

The cost of this idea will be billions for the Treasury, but it will go a long way in saving the pension world from disaster. Also, pension funds should not be taxed on fund surpluses. To offset this cost, we could end the 10% tax credit for individuals so that they would be taxable on dividend income from basic rate tax, instead of the additional higher rate tax that kicks in.

Interesting to have the technicalities explained but, even to my simple mind, it was clear at the time that money was being taken taken out of pensions and put into the exchequer.

Its fair to say I still don't care for being mugged even if the process is technically fascinating.

It may not mean that Gordon was fully responsible for wrecking the pension schemes. However he introduced a tax grab without any care whatsoever for the pension schemes. It was also implemented through means that the average person would not understand or realise the implications of.

We can see that Gordon has no desire for people to save anything for themselves. He cut the tax-free saving allowance by scrapping PEPs and TESSA's and introducing ISA's. (Similar wrappers but with lower limits) and now after ten years decided to increase the ISA limit by only Β£200. The ISA limit should be pegged to inflation at least, just like other personal tax thresholds.

Other policies such as pension credit also discourage saving.

Lets hope more of his stealth taxes are fully exposed so the public will finally understand the scale of his taxing, and perhaps then we will get shot of him!

Yet again the ΒιΆΉΤΌΕΔ is an apologist for the Labour Party and fails to get to the real issue in a story by clouding with irrelevent data.

Well, that’s one way of looking at it.

On the other hand, by removing tax rebates on pension savings, pensioners are now double-taxed: on the investment and on the subsequent income.

And pushing pension companies to earning interest on loans rather than dividends at a time of falling interest rates reduces the pensions providers’ income-earning potential, so reducing further the overall value of pension funds.

At the same time, the Chancellor was pushing up other taxes, while house prices rose dramatically, making the cost of housing much higher; both having the effect of reducing the amount of money available for savings. For most people, it simply wasn’t β€œopen to us to keep our pensions alive, by investing more in them if we wanted to fill the hole he had left.” There wasn’t any income left over to fill the hole dug by the Chancellor.

And you really should tell us what was equivocal about advice such as β€œif share prices fell by a full 20 per cent and the fund was wholly invested in UK equities, a pension of Β£5,000 a year could fall by Β£1,000,” or β€œquite clearly any loss of pension could be difficult for someone with a small income to cope with”. Share prices fell by much more than 20 per cent.

Here’s some more advice for the Chancellor that you say is equivocal.

β€œWe agree that abolishing pension tax credits would make a big hole in pension scheme finances.”

β€œThe loss of tax credits would cost pension providers about Β£4 billion a year, growing over time with future dividends.”

β€œThe corporation tax changes are likely to reduce both income from, and value of, pension providers’ equity assets.”

β€œThose who are about to retire (or who have just retired) could be worst affected.”

β€œOf course, the downside here is that benefits would be smaller and this would run counter to a policy of improving retirement income.”

β€œEmployees (or their employers) would have to increase contributions if pensions were to be maintained.”

β€œThe general message is that the big employer pension schemes will be able to cope at some cost to employers. But members of money purchase schemes would all be potential losers.”

β€œThere is very big uncertainty over the extent to which pension schemes could absorb the effect of the loss of tax credits.”

β€œThe change would therefore lead to a reduction in pension benefits for the lower paid.”

β€œSome schemes, which will be given a high profile by the pensions industry, will be pushed into actuarial deficit by the loss of tax credits.”

β€œIt is possible that some local authority pension schemes may need to be topped up. If so, this will lead to extra public expenditure.”

The Chancellor needed to put up a bit more than a warning notice. You might just about be able to think that if you are in a public sector job with an index-linked pension.

The rest of us might just think the Chancellor stole our futures.

An excellent article, many thanks. Of course GB was never going to tell us the full extent of what he had just done in his first 2 budgets because that would have implied thinking long term - and we all know politicians don't do that. He wasn't wrong to do what he did (Chancellors are there to raise taxes somehow) but he was wrong not to have warned us - and for that I, for one, won't be voting for him.

Typical ΒιΆΉΤΌΕΔ reporter sucking up to Labour paymasters

I did not understand this subject until now. Thanks Evan.

I also thought that Brown may be getting unfair coverage in the right wing press on this pensions subject. But after this piece, I think one can safely assume that, on balance, Brown was in the wrong

On the effect on final salary schemes, this article forgets the impact of other changes to accounting rules at the same time (FRS17)that made it difficult if not impossible for companies to run final salary schemes sensibly, nor does it adequately reflect the imopact on markets of the lower demand for shares, notwithstanding the dot com falls.

The word 'disingenuous' could have been invented for Gordon Brown's budgets.

But then one only has to look at Rhodri Morgan to see what happens when they try and 'tell it like it is'..

What was really surprising to me at the time that Gordon Brown took the tax relief on dividends away from pension funds in 1997, was how little fuss the pensions industry and sponsoring employers made at the time, even though they all knew perfectly well what it meant.

The reason why is not hard to find - it was because this was a time that so many employers were paying little or nothing to their pension funds. It was hard for them to complain about what the Chancellor was doing when it paled into insignificance compared to the amount that employers effectively took out of their pension schemes right through the 1990s.

During that period too many finance directors simply forgot that they might actually have to pay money into a defined benefit pension scheme. So if we are having to allocate blame for the present crisis in defined benefit schemes I put finance directors at or near the top of the list and Gordon Brown some way down.

So he raised 5 Billion to spend on what? Where is the benefit of that spending? I certainly don't see it and don't tell me the NHS or Education has benefitted either.

All I see is the government taking huge amounts of tax from my business and my staff either directly and/or in-directly and I see nothing in return which can justify it.
What this country needs is another Margaret Thatcher!

I am beginning to think that Guido Fawkes has a point - if conventional commentators dare to confront ministers they will pay the price. Perhaps it's the political equivalent of Stockholm syndrome for hostages! The idea that Gordon could bleed five billion pounds each and every year out of the private pension system without damaging it is not credible. Evan points out that the Chancellor knew exactly who would be the losers but no doubt Gordon worked on the classical socialist assumption that anyone with a company pension must be a "filthy capitalist" and deserved all they got! Sadly a lot of ordinary workers have paid for Gordon's greed.
Even worse - having irreparably damaged the funds, Gordon brought in the Pension Protection Fund to force the survivors to pay for the his Tax raid. Of course, if we believe Ed Balls and Evan - Gordon is a saint and can do no wrong!

What it reveals is the immaturity of Gordon Brown. I remember him as an undergraduate at Edinburgh University where he was the first β€˜student’ rector. He was just as slippery in those far off days, all gimmicks and wheezes and smart little tricks. It did not matter then since nothing was at stake and the only objective was to annoy Principal Swan, the universally disliked head of Edinburgh University in the early 1970’s. However these same childish tricks employed as Chancellor of the Exchequer have been extremely damaging to so many working people who trusted him. The thought of this petulant, middle aged, β€˜teenager’ holding the office of Prime Minister is truly a matter of concern.

"Firstly there were enough other, bigger things going on that did more damage.
And secondly, it was open to us to keep our pensions alive, by investing more in them if we wanted to fill the hole he had left. The chancellor may have put an obstruction in the pensions road, but he wasn't driving the car that crashed into it. "

I'm sorry but that is pretty damn weak. Yes the pensions landscape and changes were complex and Brown is not alone in the court of public opinion for the destruction of our pensions system. But he's the chief defendant and using as his defence that it was open to us to invest more if we wanted to fill the hole of his creation is an incredible defence.

It's the same as saying that the burglar who quietly sneaks into your house in the dead of night and steals the family silver isn't guilty of theft because you can always buy further silver to fill the hole left......

Thanks Evan. I was going to have to waste a long time posting somewhere about this and you've managed to sum it up very well.
I would add one point to the doomsayers on pensions: what this did was remove the ability to claim back a 10% tax on dividends. As dividend yields are rarely more than 4%, you're essentially talking about an additional tax of 0.4% on pension funds.
When you consider that the FTSE 100 dropped by more than 50% between 2000-2003, a tax of 0.4% per annum on pension funds investing in the FTSE pales into insignificance.

Isn't odd that the advisers and those taking the decisions are in pension schemes that were not affected by any of the proposals and changes.

Excellent article - actually quite fascinating!

I wonder if the Conservatives will return us to the days of straight talking on such matters or if George Osborne will continue to employ sleight of hand in his fiscal pronouncements.

Of course, this presupposes the Tories will be elected; which is becoming ever more likely (for good or bad) as Brown's questionable mores (and I do think this is a moral issue) come increasingly under the spotlight of public scrutiny.

Well done Evan Davis. A very clear explanation of a complex subject.
But surely the remaining problem is that Gordon Brown would not have had the first idea how to give this explanation. Rightly or wrongly his convoluted answers always leave doubt about whether the truth is coming out,and in a PM this won't wash.

I think a lot of the anger people feel regarding this Β£5bn tax is that it ends up hitting those who have been (to borrow the chancellor's much-used term) 'prudent' enough to invest in their pensions.

OK, so the move was implemented at a time when the pension funds were 'in surplus'... but the value of their investments can go down as well as up, just like anyone else's.

OK, so the chancellor was not, as you point out, at the wheel of the car, but he'll be raking it in on the "memoirs and lectures" circuit long before I'll be able to retire now.

This policy stikes me as regressive and short-termist - and even if that's how you like your taxation, I'd argue that the pensions system is exactly the wrong place to put it into practice.

What?! Brown expected the industry to "cope with it adequately"!! The CONTRIBUTORS are the industry, and Brown effectively removed billions from THEIR savings overnight.

In my Dad's day, they used to call that stealing.

However you cut it, the fact is that millions who worked hard to make a contribution had their futures wrecked by a politician who saw a nice big lump of money that he could use to buy some popularity. Great chancellor? I don't think so. Great thief more like.

Evan as ever a reasonable sounding report. However to point at one clear distortion you state "What Gordon Brown wanted to do was raise five billion pounds".
It would be more accurate to say Gordon wanted to raise five billion each and every year with the compound impact that will imply.
He clearly chose to redistribute this massive amount from the future pension to be spent during his tenure.
A common theme eg Schools and Hospitals built through PPI funded out of future taxation incomes not yet earned.

A tricky subject and very objectively explained until you start claiming the advice he received was ambivalent - it was not, it was completely clear and he chose to ignore it. If this was not the case, the man would not have spent years trying to prevent people knowing it(until forced by a court of law to publish) and he wouldn't have instructed his minions to then try lying their way out by making outrageously untrue claims over CBI lobbying. The situation is made even worse if you equate the shocking ROI he then received for the money he took and pumped into the darling of the socialists, the Civil Service. He managed to turn 50 billion into 5 billion worth of improvements - so not only a deceitful liar but a financial genius to boot !

Evan as ever a reasonable sounding report. However to point at one clear distortion you state "What Gordon Brown wanted to do was raise five billion pounds".
It would be more accurate to say Gordon wanted to raise five billion each and every year with the compound impact that will imply.
He clearly chose to redistribute this massive amount from the future pension to be spent during his tenure.
A common theme eg Schools and Hospitals built through PPI funded out of future taxation incomes not yet earned.

So what chance is there that MPs and our burgeoning Civil Service Pensions will be treated in the same way?

I work in pensions. I saw this rape* and the consequences 10 years ago, why has it taken the ΒιΆΉΤΌΕΔ so long to wake up? Has the old dog finally woken up to the reality of New Labour?

* Rape - use of force to violate an unwilling victim

You do tend to assume that it's fine and easy to 'top up pensions' - but outside the over-paid London zone, that's not necessarily straightforward. The other problems with the pensions system - falling market and living older - should have been foreseeable; and the government instead chose to make things harder for the system to keep its balance.

Thanks for explaining this. I now fully understand why I don't trust Gordon Brown. As for him as PM. God help us.

While of interest to the historian or archivist of pension/tax theory, this blog completely overlooks the fact that Brown and his tiny circle of bag carriers (Ball etc) have repeatedly lied about this issue in the last 10 years. No sane business person could be in any doubt that this tax change is the foundation of the destruction of the fine UK pension system in place in 1997. I think the 2 year attempt by Brown and his little buddies to resist the Freedom of Information request to publish HIS OWN DEPARTMENT'S ADVICE says it all. Brown is an incompetent hypocritical lier who seems to desire that we all become beholden to the State as " Turkeys never vote for Christmas". We can only hope that more of these truths come out before all but the die hard socialists decide that anyone is better than this man as PM. He deserves to retire to Scotland to write his preening memoirs and get out of government. He has contributed to all of the actions which have so destroyed the great institutions of this country in the past 10 long years.

There is another point which does not appear to have been covered yet. Mr Brown's pension tax changes did not effect all pension savers in an equitable manner. Most members of final salary pension schemes (including of course public sector workers) were not directly affected by the changes, unlike the self employed and holders of personal pension plans, who all took a full hit. It is generally agreed that final salary pension scheme members have always been in the more priviledged position anyway as their (usually higher) pension benefits are effectively guaranteed by their employers. Most personal pension plan holders have received relatively smaller employer pension contributions (in many cases nil)and their pension benefits are directly affected by market conditions ( e.g falling stockmarkets, adverse changes in annuity rates). The question therefore is why did Mr Brown decide to bring in changes which further decreased the benefits of that half of the popoulation which were already disadvantaged. In fact the real question is whether or not Mr Brown fully understood and appreciated that his pension tax changes were in fact so discriminatory ?

Evan, you are far too generous to the Chancellor, though given you are from the ΒιΆΉΤΌΕΔ, could we expect anything else? British pensions work on the principle that investments are made without tax deducted, but payments to pensioners are fully taxed. Brown's change means that tax is paid twice, firstly on much of the money going into the pension fund, and then also when it is paid to pensioners. It is as simple as that, and was presumably introduced as another stealth tax in the hope that nobody would notice. But now taxpayers have noticed, and they have also noticed how generous the MP's and public sector pensions are now by comparison with their own meagre payouts.

I think this is a bit too sympathetic towards Gordon Brown. The civil servants were not going to tell him what to do but to give advice of possible consquences. He had to use his judgement which has subsequently shown to be flawed. He tried to make a quick grab for 'easy money, as he saw it, and the primary driver was that people probably wouldn't notice. At the time they, apart from a few experts, didn't though the consequences are now clear enough. His tax raid has hit the less well off in the private sector the hardest. Also, to underplay the significance of the extra costs to business from this change is either naive or again trying to soften the blow on Gordon. On the whole a poor article.

How on earth can you invest more to fill the hole created by Brown's tax grab when you are being taxed to the hilt?You need to enter the real world. I have been hit twice by Prudence,the pension fund grab in 1997 which reduced my expected monthly pension,and last months budget which means I will be paying around Β£200 more in tax next year.How people, like you,can say he has been a good chancellor is beyond me .He's been good to his fellow MPs and to the workshy and that's all.Nothing to the people like myself who worked for 42 years or my wife who worked for 35 years.The man's a dishonest disaster.

If there were other, bigger things going on that did more damage to private pension funds, a brilliant Chancellor like Gordon Brown really should have taken them into consideration when making his Β£5bn pension raid.

Whoever - if anyone - was to blame, what we are left with after 10 years of Mr Brown's stewardship, is a ruined private pensions sector and a feather-bedded public pensions sector. But perhaps that is what he intended?

Anyhow, thanks for the article, if only because one might otherwise have concluded, reading ΒιΆΉΤΌΕΔ News Online over the past few days, that the whole pensions grab affair was a non-story.

I always suspected the author was overfriendly to Brown. Articles like this are to be expected when Brown's friends are appointed to ΒιΆΉΤΌΕΔ DG positions.

This was an premeditated and greedy raid on pensions by a man who has upped the retirement age to 68 for private sector workers but left his army of public sector workers with a fat pension at 60.

Other factors are at play and the funds were in profit but this action tipped the balance. Also when the dotcom crash happened Brown did not rush to reverse the change did he?

Pensions? take them
Education? Impose tuition fees
House of your own? Scrap mortgage relief.
Health? Shut down smaller A&E's
Local Democracy? Centralise but don't forget to double council tax.
Record deficit? sell off our assets

No wonder this country has the biggest drain of graduates in the world.

As usual, Evan Davis sheds light on a complicated subject. However, I still remember my late father (a pension fund trustee) saying at the time that Gordon Brown had raided the pension schemes and this would cause major problems in the long term. The government is trying to suggest that the collapse of final salary schemes could not have been predicted, but clearly some people could see that the changes made in 1997 would have a serious effect.

This may not be a very interesting topic for Kendrick Curtis but it sure is interesting to all those people who trusted to a pension plan which was not there when they came to retire.
The key lesson from this whole episode is not to trust a Gordon Brown government not to grab any visible lump of money. He clearly thinks citizens who save for retirement have more money than they currently need so they can afford to give some to him.

It was my understanding that the pension companies owned so many of the UK shares, that the corporation tax 'take' was being collected on the one hand under corporation tax, and repaid on the other to the pension companies, that Corporation had ceased to have any real tax collecting benefit. Hence the change in the law that dividend tax credit was no longer repayable. As the pension companies had factored in the repayment in their expected valuation/return, it rather mucked up their figures. The alternative would have been an increase in other taxes to make up for what was being lost in Corporation tax.

Is it any surprise that people don't believe Gordon Brown anymore? It's the cat thinking that if she shuts her eyes while stealing drinking milk, no one is watching her (An old Indian saying).

Gary

My simple take on it is that I didn't really get any visible extra money from any of Brown's tax adjustments and had the visible result that my pension was suddenly worth less than it had been. Then Brown had the cheek to tell me I should put more into my pension, without telling me where I should find that extra money (while he's taking more of my income through stealth taxes). Ultimately he's just borrowed money from the future and at some point the government in power will end up having to pay it back with interest as pension schemes fail to provide enough income. Of course, he never told us that Prudence had such a short-term view.

I agree with the idea that we are told about all the winners but never warned about the long term effects of these well hidden tax increases.

This chanceller will be well remembered for his hidden taxes. His ability to pull the wool over your eyes is quite exceptional.

Has there ever been any other Chancellers as good at this as this one?

This is just the sort of uncritical writing that adds further evidence that the ΒιΆΉΤΌΕΔ is an apologist for the Labour Party. Evan has completely missed the point to the story and meanders along innocuous tax dead end paths.

We have known for 10 years that Gordon Brown's Β£5b a year raid on pension funds would lead to grief. We also know that he is a coward and invariably will be nowhere in sight when the going gets tough. Release of information this weekend was skilfully planned to minimise its impact, but surely the time has come for him to be taken to task. I have often wondered why Tony Blair left Brown to his own devices, and I have concluded that he fully expected the country's finances to go belly-up sooner or later and catch Brown wanting. I'm old-fashioned and do not believe in rewarding incompetency, so I'm afraid that if Brown somehow manages to become the leader of the Labour party, then there will be no kisses in the ballot box from me. Why should we endorse a doubling of this man's pension through promotion?

But I'd have to disagree with your assessment Evan...

If there's no tax to be reclaimed how come people still have the tax on their dividends deducted at source?

Brown et al raised Β£5bn/year of the back of this tax change so it was hardly tax neutral, perhaps what he should have done is cut income tax to compensate (or raised the lower limit so the least well off benefit too)

What he did do was deceive the tax playing public and deny people needed to contribute more to their pensions as a result of his changes.

Less money in the stock market means less demand for shares and hence lower prices.

It's easy to say the dot com bust had a greater effect on people's pensions but the reality is we don't know 'cos it's all hypothetical.

Simple fact Gordon robbed out pensions and the sooner he's only the dole the better (although with his nice fat ex-MP's deal he's never going to poor - unfortunately)

As Kendrick says, a good clear article.

Interesting usage of 'and' however. I am aware that it is now relatively common to see sentences starting with this conjunctive, but have not seen it start whole paragraphs before.

With no disrespect for the ΒιΆΉΤΌΕΔ for following contemporary usage, and merely out of curiosity, is there a policy document on this that can be shared with the public? There was one for photo captions a short while back...

It seems to me that this explanation misses a key point. I thought pension funds were meant to be tax-free until the pension is paid to a member. If pension contributions are tax-free, shouldn't dividends on the investment of those contributions be tax-free as well? And if dividends are taxed going into a scheme, then isn't it a double tax when members pay tax on the benefit they receive in retirement (including the value of dividends)? Or perhaps it is me who is missing something...

What we have learned from Gordon Brown's first budget is that he is a terrible thief. "I see a pot of cash, I will go and help myself."

Some may consider the word Thief a strong word but if you own a busted pension and are living in penury it probably rings true.

Of course the sad thing is you can't call anyone a thief these days, especially the man who will appoint the next Chairman of the ΒιΆΉΤΌΕΔ.

It seems to me that this explanation misses a key point. I thought pension funds were meant to be tax-free until the pension is paid to a member. If pension contributions are tax-free, shouldn't dividends on the investment of those contributions be tax-free as well? And if dividends are taxed going into a scheme, then isn't it a double tax when members pay tax on the benefit they receive in retirement (including the value of dividends)? Or perhaps it is me who is missing something...

It seems to me that this explanation misses an important point. I thought pension funds were meant to be tax-free until the pension is paid to a member. If pension contributions are tax-free, shouldn't dividends on the investment of those contributions be tax-free as well? And if dividends are taxed going into a scheme, then isn't it a double tax when members pay tax on the benefit they receive in retirement (including the value of dividends)? Or perhaps it is me who is missing something...

I did get advise from my private pension company to invest more as a direct result of Gordon Browns change in tax of dividends in pension investments. That company was Equitable Life. I wonder if they would still be trading if GB had not changed the tax system as he did. The obvious thing to do was to invest more but that would have meant lifestyle changes at best or positive cut in living standards at worst for many self employed. This was not an option for most and GB new it. The result was failed established companies and closing company pension schemes. Your other point about GB wanting to stop a few taking advantage of the tax brakes by investing in pension funds; all they were doing was deferring the tax they would pay on that money when it was eventually taken as income. This was not acceptable to a chancellor that wanted the money now. I do blame GB for my poor pension performance, for like most self employed I have saved all my life for a reasonable income in retirement and feel I have been robbed of my future income to pay for a failed labour policies life the NHS now. What a waste!

Doesn't anyone at the ΒιΆΉΤΌΕΔ speak to anyone else? Radio 5 has already carried an authoritative report from an esteemed pension expert (and certainly no friend of Gordon Brown) which entirely exonerated Mr Brown from the present pensions crisis. You have a duty to be fair, balanced and unbiased. You are spending my money, publish a correction or interview the independent expert, or let me vote with my wallet by ending the licence fee.

I'm self-employed, and it was obvious to me in 1997 that I would need to pay more into my personal pension plan to make up for the lost tax advantage. But I was already paying in all that I could afford, so by now my pension fund is worth about a quarter of what it would have been if I'd been making the same payments under the former system. It's all well to say, "Just top up your contributions", but where's that money to come from? Sorry, Gordon, but the first thing you did was to kick the little guy where it hurts the most.

Right on Euan. This is the clearest explanation I have read which helps me but as a Times reader it seems well at odds with there partial(?) reporting of the same topic. It also seems to differ from Frank Field in the Sunday Times who was also more critical.
This issue is just too tricky for the common man it seems absurd to be reduced to five word headlines.
Anyway I like yor blog.

Again Evan you succeed in communicating complicated issues in a user-friendly manner, ever considered writing a book on Economics?

At last, this scandal is getting some attention. Good on the Times for telling it like it is and showing just how Gordon Brown has condemned millions to a life of poverty when they retire. The man should be put before an inquiry yet he in all likelyhood will be our next prime minister!

Well Mr Davis, that's all you had to say, he would not be responsible for taking money out of the pension pot if he'd only pre-warned us. It doesn't matter that we would have to find the additional funds to make up the short fall. Isn't that like saying that it is ok to take people's money if you pre-warn them that you're going to do it. Warnings, car crashes, and road blocks indeed. As ΒιΆΉΤΌΕΔ's economics editor,Mr Davis, I don't suppose you're after his old job should he ever become PM are you? If you are, God help Evan Brown - Gordan's mini me.

At last, someone has twigged. My late F. advisor told me this would be devistating and so it is for all of us. Mr prudent will leave a legacy of poor pensioners and little manufacturing in Britain. He has stood at the dispatch box and told us he is looking after pensioners, while removing millions from our funds, remember he put up National insurance by 1%, not much you say, but in real terms that was an 8.5% rise. We missed that as well. Manufacturing did not and all over Britain factories close due to red tape and increasing taxes. Well done Gordon, the masked raider.

It mat not be a very interesting subject but, just maybe, Kendrick has a civil service or final salary scheme to draw from. The effects of this tax-raising measure, along with other reasons too many to go into here, will have a massive effect on future government commitments to state pensions and, in particular, pension credits. The effects will be felt when Gordon Brown is history - I just wish he was now!

This article is good but too easy on Gordon Brown.

By 1997, the combination of under-investment in pensions, people living longer and demographics pointing to a much-reduced working population meant there was already a clear pensions crisis looming for the future. The Govt. was under a duty to the nation to reform and improve the position. Instead, GB cynically did the exact opposite. He took advantage of the widespread ignorance/apathy about pensions to lift Β£5 billion pa to avoid having to raise income tax (which he had pledged not to do). The compound effect of that has been hugely detrimental and continues to be so. It is not good enough to say that individuals and companies should have put in more to make up the difference - they should not have had to - and many could not afford to. And, of course, every Β£1 that they put in to a money purchase scheme buys less than it should have done.

Unfortunately, the grief doesn't end there. These same unfortunates who have spent 10 years making extra pension contributions and being stealthily taxed up to the hilt, must also contribute through taxation to all the trouble-free gold-plated public sector pensions that have been doled out, not least to Gordon Brown himself.

It makes you proud to be British.

Dress it up how you like - this was the first of many Gordon Brown stealth taxes which have hit our pocket indirectly. I spotted it at the time and wrned folk I know of the implication.

Before this week I was irritated. Now I am furious. He was warned and he went ahead. As a commentator on the ΒιΆΉΤΌΕΔ said tonight, at the very least that was "reckless" - the opposite of his widely spun "Prudence"

Hopefully he is now exposed. This man must never become Prime Minister after all the damage he has done, of which this was just the first instalment

A moot point Evan!!!
Yes there were other factors - however Mr Brown's impact was a controllable decision which has adversely affected the pensions system massively.
I'm afraid a very poor and cynical decision on the part of the chancellor which has contributed to peoples distrust of government and pensions.

Ironic when MP's have the best pension scheme in the country!!!??

To my simple way of seeing things, we are told there is a "black hole" of anywhere between Β£40Bn and Β£90Bn in our country's private pension system (depending on which newspaper you read) and the chancellor has systematically raided about Β£75B out of there in the last 10 years. These figures don't take into account the reported unfunded black hole of Β£161Bn in the NHS pension fund!
Even in 1997, it was well known that the stock market was overpriced and needed an adjustment. I contend that much Health and Safety legislation introduced over the last 20 years is based on "avoiding that which could reasonably have been foreseen on the balance of probabilities."
The pension crisis in which we now find ourselves was caused, in the greatest part, by this grasping raid perpetrated by Gordon Brown. He could reasonably have foreseen it - his advisors DID foresee it - yet he did it anyway and he is now causing a major health and safety crisis to many hundred's of thousand of pensioners who are ever more unable to afford even the basic necessities of life. He has had the opportunity over the last six years since the dot-com crash to repeal this change, but he hasn't, and millions more will suffer hardship. Let no one doubt that this man does not care one iota for the hardships endured by the British Public.
Russell Branch - a former Labour voter, never again

Too technical, and overlooks the terifying truth: Millions will now live in old-age poverty. And you cannot absolve NuLab. It was the first nail in the coffin, but thanks to Greedy Bags Brown, Labour could no longer criticise companies closing their decent, final salary pension schemes. Nor did he reverse his raid when he saw the impact of the other "bigger causes", Evan. Some of these so-called bigger causes would and did reverse in time - e.g., shares recovered - but Labour's massive damage goes on year after year. It saps at people's desire to buy pensions (no incentive). Some give up altogether, others pump yet more into the inflated property market. Lastly it has permanently driven a wedge between public and private sectors - ΒιΆΉΤΌΕΔ employees like you, Evan, are some of the lucky ones. I doubt you could be so drily dull about it if you had seen any chance of a decent pension being taxed out of existence, just to be wasted on crazy NuLab schemes. Only last week, the latest massive scandal, this time of junior doctors' recruitment system being dumped showed us yet again what happened to the money from our once-excellent pension system.

Evan Davis article is a wonderful unbiased work.Anty Brown politician are trying hard to discredit him before he becomes prime minister.I have retired in 1997 and did not noticed any reduction in my pension.Gordon Brown needed the extra 5 billion to run the ecconomy efficiently and made every bdys life better by spending huge amount on education and NHS.Politician are complaining that all these extra finance did not improve the services,for Gods sake just think what would have happened to Education and NHS if Mr Brown followed the conservatives spending plan.

I'm surprised that the previous commentor thinks this a "not really that interesting subject". Possibly he has not lost his pension or his prospects of a happy retirement - as so many have - or possibly he has an unfunded inflation linked public sector penion.

And what on earth does "mod parent up" mean - and who says it?

Two more serious points. First, the author implies that pension funds would have avoided the loss of tax credits on dividends by buying loan stock/bonds instead.

A pension fund (and I'm chairman of one, for my sins) uses bonds where it needs a reliable income - basically to pay pensions to those drawing them. But the returns on bonds though dependable are modest - indeed currently minimal.

To build up the pension fund for the working members of the scheme, which will be used to buy the bonds that provide the income that pays the pension, funds look for investments that share in the growth of the economy: equities or property. There is no other way that a final salary pension scheme can be funded (except for those public sector schemes funded by taxation). Pension funds thus have to use equities and depend both on their capital growth and their dividends. And the tax changes set in hand by Mr Brown in 1997 year after year reduced the income of the funds from equity dividends by the massive amounts being quoted.

And however reasonable it might have seemed at the time to those who didn't understand pension funds' need to invest in equities, and who were dazzled by the transitory surpluses (which the Inland Revenue leaned on us to eliminate ASAP) to remove the ACT structure, it has over the last ten years been shown to be wrong, and even if the initial error was understandable the year on year continuing application of the changes as pension funds collapsed WAS a major cause of the problems the industry has faced. If a reader of this comment has lost a pension or been forced to accept a defined benefit rather than a defined contribution pension, Mr Brown, though his 1997 decision, and his subsequent determination not to move from it, has undoubtedly been substantially to blame.

I don't want to sound sour but I really wonder if a ΒιΆΉΤΌΕΔ economics correspondent would have been so ready to have shrugged his shoulders at mistakes as significant by ministers in the previous administration.

The discredited attempts of Mr Balls and anonymous (and I hope "political" rather than "official") Treasury spokesmen to claim that the CBI supported the Chancellor's policy simply serve to illustrate the climate of truth (or untruth) manipulation in which ministers are able to isolate themselves from reality.

The latest element of this is the so called Pension Protection Fund, supposed to help victims of fund failure. As we approach its second year it is grabbing a higher and worrying proportion of the income of solvent funds, threatening their solvency. The fund I chair, though solvent, is now closed to new members - and though solvent we are being forced to shell out more and more of our income to this fund.

If Mr Brown had reversed his 1997 tax decision our problems would have been so much reduced.

I would like to know precisely what were the "... other, bigger things going on that did more damage."

I think that Evan can take a detached, rational view of this because the ΒιΆΉΤΌΕΔ itself, funded by one of the most hated taxes in England, has a final salary pension scheme that is one of the very best in the country.

Others simply cannnot afford to be so blase.

All concisely and eloquently put. But what I still cannot understand is why the anger has been delayed for ten years. It was wholly transparent at the time and simply the first of many insidious stealth taxes which were specifically designed to be too complex to hit the tabloid headlines? The whole story should also examine the effect on the self-employed home owner - losing a significant amount in his own pension and paying massively more council tax to pay for final salary schemes in the public sector. That would be an interesting calculation.

This article throws light on not only the prevailing circumstances and Brown's recent budget, but elucidates it eloquently with a proper context. As a broadcast journalist, it certainly aided my understanding of the true implications of past and present tax reforms and proposals. Tremendously helpful and interestingly written.

I presume that this "not really Gordon's fault" article is designed to ensure that Evan is regularly invited to the top table after Gordon's coronation later this year.

Your article appears to play down Mr Brown’s role in creating the current pensions problem. Many commentators talk about his cerebral capacity and economic acumen. But, either his intelligence is overplayed or he was more conniving than the papers report.

Any tax-raising chancellor knows that people will seek to avoid them. Rational agents in any market always seek to avoid higher costs.

Aside from lump-sum taxes, changing taxes also changes incentives. Be it incentives to work, save or invest. A chancellor must understand the likely reactions to these incentives. Firstly, these will affect how much money is raised and whether the revenue target is achieved. Secondly, they will have wider economic impacts. As the Chancellor is more than a Minister for Tax and Revenue he is not excused from thinking about the wider economy.

So, by changing taxes, the Chancellor changed incentives. Assuming he understood these incentives, he then placed avoiding political fallout ahead of economic stewardship. He could have explained the full implications of the tax changes, but he chose not to. This makes him guilty of exacerbating that well-known barrier to rational decision-making – asymmetry of information. To use the analogy of the article: the obstruction in the road was deliberately behind a blind corner with the warning signs purposely removed.

Thanks Evan for a balanced view on the subject. However, I think the real reason a lot of people will find his decision questionable (and did so at the time) was that he and all his civil servant advisors were not in any way personnaly affected by the changes. Their (overly?) generous, government guaranteed pensions, insured that they could safely ignore any concerns as it had no impact on their own retirement plans.
It was clearly a spiteful act and I, for one, am glad to see that it has come back to haunt Gordon Brown.

At the start of the 1990's we had an enviable private pension (defined benefit) scheme, by 2002 it was destroyed. The effective reduction in "money coming in" to the pension funds by Gordon Brown's taxation change caused them to re-assess their pension models. Out of the woodwork came all the nasties, actuaries reviewed their longevity calculations, the reduction in income was exaccerbated by the stock market fall in the wake of the dot.com bubble bursting. Added to this was the increased legislation (again Government involvement) in the aftermath of the Maxwell scandal and the introduction of the MFR (subsequently discredited) which caused previously good funds (those forced to take pension holidays a few years earlier - and I did say forced) to have a deficit which needed plugging within 5 years. Companies then realised that they had effectively signed a blank cheque, and the government (far from supporting them) was doing all it could to hammer the nail in the coffin. Most companies quite rightly bailed out, and the defined benefit scheme died. (apart from the public sector - Mr Brown's own pension included)

The pensions issue is one of a number where Gordon Brown appears to have been less than entirely open. I continue to marvel at the lack of scrutiny of his comments on Stamp Duty on housing in the 1997 budget. This is what he said in the Budget Statement:

"For most people the acquisition of a house is the biggest single investment they will make. ΒιΆΉΤΌΕΔowners rightly expect their investment to be protected by sensible policies pursued by Government. I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s.

Volatility is damaging both to the housing market and to the economy as a whole. So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.

I have therefore decided it is right to take two measures aimed at stability in the housing market. First I will raise stamp duty from 1 per cent to 1.5 per cent on property sales above Β£250,000 and to 2 per cent for property sales above Β£500,000. This will take immediate effect after the Budget resolution has been voted by the House."

So he makes a clear suggestion that increasing Stamp Duty will have a dampening effect on house prices. Of course, every moderately competent economist knows that taxing any transaction will tend to increase, rather than reduce, the cost of the transacted goods. Given that the Treasury does have rather a lot of at least moderately competent economists, one suspects he was advised as such in this case as well, and chose to ignore that advice. One can only conclude that either he is a lousy economist, or again, being less than honest on the subject.

Well Evan I guess you have a protected pension at the Blair Broadcasting company, but forgive the rest of us who don't to be a little less forgiving, it's estimated that he has taken 90 billion out of our pensions, and frankly I could do with my little bit of it, to pay the licence fee to contribute to yours!

I think the cumulative impact of imposing a Β£5bn annual tax on pension fund growth should have been fairly obvious. Pensions are a long term investments which depend on steady growth over many years to achieve their planned payout. Reducing that growth will obviously reduce payouts year by year unless someone replaces the money the chancellor has taken.

This is a perfect example of political hypocrisy. The government is busy exhorting us to plan for the future and creating compulsory pension schemes, while raiding those same pensions to fund recurrent expenditure.

Keith.

He wasn't warned, he was just told of the consequences. Right.........

Typical biased reporting by the ΒιΆΉΤΌΕΔ. Simple question...if Mr Brown believes he took the right decision 10 years ago, why has his office spent 2 years (and public money) fighting The Times to avoid releasing the advice he received from his officials (against the policy). It is obvious that he (Brown)knows his decision has helped caused a persions crisis that is why he tried to suppress the information release of his officials advice. Further Ed Balls lies about the CBI support of the policy has blown up in his face. Please stop this stupid biased reporting/commentary

Thanks Auntie BEEB for hiding the (front page) story away in "politics" and then making apologies for Brown by carefully selecting your facts - the ministry of truth couldn't have done better, the story that G Brown has put 10s of thousands of hard-working, genuinely prudent people into poverty. The institutionally biased ΒιΆΉΤΌΕΔ
should be investigated.

Disgusted.

"... employers who were free to increase contributions but chose instead to accelerate the closure of final salary schemes".

I think you have mixed up cause and effect. Employers closed final salary schemes becuase of the tax change along with various other Government legislation which increased the burden of running such schemes.

I am concerned that the so-called independent ΒιΆΉΤΌΕΔ is yet again apologising for a mistake. It was said at the time that this would have a devastating effect on pensions and it is difficult to see how any sane person not mired in political dogma can claim that forcing millions into poverty was the 'right decision for Britain'.

There has been a lot of concentration on company schemes, but the same applies to the millions of small personal schemes ( money purchase ) by self-employed and others.
Can you also remind us : doesn't GBrown ( & rest of Cabinet ) enjoy exemptions from the restrictions placed on other pension scheme-holders eg the pension cap , because their fund is paid for future tax payers ?

The argy bargy about who said what to whom over Brown's pension raid is irrelevant. Brown taxes anything he can lay his hands on. His much trumpeted A-Day changes of last year have already been changed again - barely 6 months in. Pension planning under Brown is about as reliable as kite flying.

It's worth noting that Brown never makes changes which detrimentally affect public sector workers. The whole of the impact of the pension changes was borne by the self-employed and the employees of smaller companies while public servants retain final salary, index linked pensions. The Labour Party exists solely to support and indulge their public sector union bosses.

At the time I estimated that the effect would be to increase required contributions by 20% to keep pace with the loss of tax credits. Another case of unforseen consequences was that the change completely ruined the market in preference shares which had been reasonably popular as a source of fixed income, particularly convertibles where there was some capital growth potential.

Allied to other requirements of matching liabilities with gilts - of which there was a shortage at the time as we were in debt repaymnent mode in 1997/98 - there was a double effect. Pension Funds paid too much for gilts which then had a knock-on effect on solvency margins. This came on top of the loss of tax credits in the Robert Maxwell Memorial Budget. I wrote to Brown at the time asking why the Treasury saw dividends as such a bad thing - they always have despite the additional accountability to shareholders that a dividend policy involves. I never got a reply...

The only surprise in any of this is that it has taken ten years for some people to realise what the effect of this first and greatest of Brown's stealth taxes was going to be. Anyone like me in the pensions industry could have told you ten years ago, and did, but in the euphoria of a Labour election victory nobody wanted to know. There was something of the deus ex machina about it all - it appeared to solve some reveue problems without affecting anyone. Well now you all know different - it was your money he was taking not some faceless intitution's.

Of course there are many other factors in the demise of defined benefit schemes, not least the Tory efforts of the late 1980s to introduce 'choice', which resulted in widespread opting out from good occupational schemes but Brown must bear a heavy measure of responsibility. Bet he won't admit it, though!

Like saying the victims of rape deserved it for the way they dress. Come on, Brown stole Β£5bn per year out of peoples pension funds and as a direct result ruined the old age of many hard working people. One year pensions funds had the money to support their schemes the next year it was gone - simple. As usual he now tries to defend it by twisting the argument and trying to claim it somehow has improved pensioners lot over the last 10 years. This is the problem with Brown, you never feel he is giving you the truth as you personally experience it.

Sorry Evan, as an economist myself I find it difficult to believe that you have so little professional pride that you can produce an article such as this. You are clearly an apologist for the Labour party and any subsequent utterances will be treated with suspicion.
ΒιΆΉΤΌΕΔ = "Brown's Broadcasting Corporation"

Your difficulty in defending Brown is apparent from the contrived and conviluted language you are forced to use.

" advice he was evidently getting - - was too ambivalent to make it impossible for him to proceed with the tax rise" Come on, Evan !

Are we to call into question the judgment of senior ministers only if they received advice which was impossible to ignore ? What about unwise to ignore ?

The decision taken by the Chancellor calls into question his judgment and the attempt to prevent the release of information calls into question his character.

Incidentally, the fact that other factors contributed to the damage done to the pension system strenghtens rather than weakens the case against the Chancellor. All of the factors in question were known risks. Great time to the worsen the tax regime.

If Brown paid back the money into the private pension funds there would be no crisis - that alone tells us that HIS decision was to blame. And before everyone points out that it would be impossible for him to do that I would like to see an analysis of how much extra money will be consumed each year by public sector pensions because of the massive increase in employees and pay(and therefore pensions)since Labour came to power. It appears to me he simply robbed the private sector to pay for pubic sector pensions. It's a disgrace that this man can ruin so many peoples old age and still be considered as a future PM.

Its all pretty academic....what really counts are the men and women who built this country into what it is today being cheated out of the benefits which they had rightly expected to receive after a lifetime of labour.

For Gordon Brown to now say that he would take the same decision again beggars belief....perhaps you should advertise what his pension will amount to upon his retirement and compare it to what the comparable British man or women earning a similar salary will enjoy....maybe that will make him think how lucky he is and how unfortunate others are.

"And secondly, it was open to us to keep our pensions alive, by investing more in them if we wanted to fill the hole he had left."

I remember Alistair Darling looking smug with himself on Newsnight saying almost the same thing on the night of that Budget.

I also remember shouting at the TV that I was already paying the maximum allowed and COULDN'T pay any more if I'd wanted to.

I left the Labour Party because of this.

This is an extraordinary attempt to calm the waters of the biggest tax grab in history:

"the most important thing is it raised money" - there were other ways to raise money than by destroying the best pension scheme in the world without warning.

"..other bigger things going on did more damage" - the other bigger things going on always go on in an economy and a stock market; they're called business cycles and the pensions sytem as it was constructed was designed to cope with them. Having one arm tied behind its back by these measures was an extraordinary act of rape.

The language of this article smacks of "Gordon and Ed having not done a good job of explaining, I'll just help them tellyou what's really going on" Just which job in the Treasury or Cabinet do you want Evan?

None of what they have done to the pensions system and the savings ratio can be explained away in Janet and John language like this - they need to roll their sleeves up and sort out a busted flush. Individuals need to save for their retirement and they need a tax incentive to do it. Face the facts; it's what Germany and France are doing and it's what we used to do to the envy of the world.

The "it's all a bit complicated, let me explain it to you" is straight out of the Shirley Williams, Dennis Healey school of mid-seventies socialist intellectual snobbery. New Labour's method of sorting out the pension system has failed just like the comprehensive school system has failed and the health service has not responded to three times as much money being spent on it.

Beaurocrats and more beaurocrats and there'll be even more until these pension wreckers are voted out. And you don't appear to say anything about the pensions of the beaurocrats, Evan, whose pensions remain unaffected and paid for by us, naturally. But then you're one of them aren't you?

At the time of Brown's pension raid our local labour MP's comment was "the stockmarket could afford it" and I believe that was Brown's approach in the full knowledge of the consequences. Sadly, until most recently, the average individual's grasp of "pensions" was poor: Brown understood that very well and took advantage. The cause and effect is there to be seen and it does the ΒιΆΉΤΌΕΔ no good whatsoever to act as Brown's apologist - either on the Web or on the Today programme.

Of course we are not all loosers. The increased tax raised by Gordon Brown has gone to swell the ranks of those employed by the state who of course get index linked pensions payed for by you know who? The same people who have had their future pension destroyed.

I suspect that the real game is to destroy private pensions so make everyone dependent on the State from cradle to grave.

Now Evan, tell me how is your pension doing? is that guaranteed by me the TV licence payer?

Gordy is now claiming this robbery was the key to our growth over the 10 years without any need to demonstrate his point. Spin, spin, spin.

You REALLY think that companies would put more money into pensions schemes to counter the effect of Brown taking the Β£5 billion out??
REALLY??

No Brown took the money and unfortunately the rest is the domino effect.

He did it!

Gordon Brown and his friend Ed Balls need I say more. Could we please have the whole truth and nothing but the truth? Or as usual we will blame somebody else other than ourselves.

I'm sorry Evan but I'm afraid your analysis really does smack of protecting your personal interest, and the ΒιΆΉΤΌΕΔ's interests, in a Brown government.

What I find unacceptable is the mendacious dissembling and hypocrisy from politicians and senior civil servants who have the means to protect themselves from the consequences of their actions.

When the rest of us are bearing the cost, the two groups who can always rely on the public purse to pay out have increased their pension entitlements, not even willing to maintain the status quo.

I don't see much about corporations taking contribution holiday when the times were good? A long term view is surely investing into a product in good times and bad times. The changes bought in by the the Maggie started this off and Gordon continues the weakening of the position of company schemes. We are all responsible and we all must pay, to aviod this simple statement is to avoid the truth.

I'd love to pay more into my pension fund to make up for this, but as a small business owner I'll actually be putting my spare cash into the 3% rise in my corporation tax.

"it was open to us to keep our pensions alive, by investing more in them if we wanted to fill the hole he had left." - oh right, so it's all our fault. Now I understand. Perhaps Evan also believes if I burgle his house then it's not my fault and it is of course open to him to go out and buy again all of the items I have stolen.

I'm sure one day Evan will write an article that is not based on his strong support for the Labour party but until he does this sort of so obviously biased nonsense dressed up as independent journalism does the ΒιΆΉΤΌΕΔ no favours.

I am afraid I am not miuch the wiser.

It seems to me that the key point may have been that it was deemed 'unfair' to give investors in pension funds a tax advantage not available to private investors or people who did not have the means to access a pension fund

Bryn Davies asks why pensions professionals did not raise a stink at the time. They did - I was just starting pensions training when the laws were being implemented and professionals were up in arms. It got lost in the Labour honeymoon period when no bad news was allowed.

I thought I was the only person that remembered this day. It would be interesting to know how much tax he has had and how he has squandered it.
Unlike the hardest hit Mr Brown has pension provisions that are cast in stone.

I am grateful that Evan has responded but he has not answered the question about what precisely were the '...other, bigger things going on that did more damage'?

This really needs to be explained.

I read of a theory that the Treasury believed that companies would increase their dividends to 'compensate' for the withdrawal of the tax break and all would be well.

Sadly, as has been pointed out, virtually all of the key players, including politicians and Civil Servants, were not going to be personally adversely affected by the negative effects of the removal of the tax dividend credit.

In my opinion, that lack of personal accountability is a major flaw in the system.

Once again your support for all things Labour is apparent. We have gotten used to the way you couch your comments. But I am surprised you can stand and defend a act of vadalism on the pensions system. But why should I be surprised most pension holders are middle class and consequently Labour sees them as easy pickings. It is becomming more and more apparent that equity for the hardworking of this nation will never happen whilst labour is in power. The only way to beat the system is to be rich or don't bother with education, don't work, spend the your benefit on beer fags and package hols; provided by virtue of hardworking who put aside money for their old age and generally be a parasite on mankind in general.

I am afraid I am not much the wiser.

It seems to me that the key point may have been that it was deemed 'unfair' to give investors in pension funds a tax advantage not available to private investors or people who did not have the means to access a pension fund

Give me a policy that secures my previously taxed money and the growth it needs to secure my future, an I will vote for the politician.

While the government has access to my retirement funds in any way or form, I cannot plan for my future.

Help politicians, campaign on this one, the people will support you.

"I think it would have been better if the civil servants’ view of the risks was shared with us all at the time. "

By whom? Only Gordon Brown could release such information, and as we have seen, only Freedom of Information requests could drag him kicking and screamiong to reveal the truth (under an act dreamt of long after he'd hushed up the evidence).

"On a different point, I stand by my point that the advice he received was pretty equivocal. You can select lines from either side of the argument"

The Civil Service is supposed to be non-political (so is the ΒιΆΉΤΌΕΔ) - of course all arguments must be presented. This is so the Minister can use his skill and judgement, and put his political reputation at risk if he gets it wrong. Which he did. Civil servants are not elected, so cannot decide. Brown decided, and decided wrongly.

Evan,

Whilst I understand where you are coming from, and indeed what you say makes a lot of sense, the ΒιΆΉΤΌΕΔ were almost as bad as the chancellor in NOT highlighting the impact.

Whilst I was not old enough to understand or appreciate the impact these changes had at the time I know someone who was, and that person recently told me that the ΒιΆΉΤΌΕΔ coverage of the budget at the time completely overlooked these changes.

Indeed it moved them to write the only letter that they have ever written to the ΒιΆΉΤΌΕΔ to highlight this and voice his disgust. The editor at the time replied saying his concerns had been passed on to a minister (sorry I do not know whom) but nothing was ever heard on the matter again.

How could someone have spotted this in 1997 and yet, even after the ΒιΆΉΤΌΕΔ were made aware - and I doubt he was the only person, not have pointed this out at the time!? Indeed even though the government, assuming that the letter really had been passed on, knew of an accountants problem with proposed changes but chose not to rebut these either publicly or in private.

I think perhaps it further highlights the feelings of mistrust that people hold towards the prime minister in waiting...

I agree with Evan Davis. Gordon Brown’s raid, cynical and bad for business as it was, has little to do with the pensions crisis. Employers made a pension promise as part of their deal with employees, and if there is a shortfall on past commitments in the pension fund for any reason, the employers are responsible for making it up. That assurance is a major factor in what makes the pension attractive to the employee, and the potential cost of providing it is one reason why equity is expected to return more than debt. The impact on companies’ profitability across the economy would be the same whether the Β£5bn a year had been taken from the pension fund or in some other tax such as employer NICs. Pension fund trustees should insist that the employer funds its past commitments up to the point that it becomes counterproductive by damaging the business. And if employers find their existing pensions promise too expensive, they are free to reduce the level of new commitments as part of the pay bargaining process, and the staff can decide whether to accept it or leave.

The real pensions problem is that employers got used to pensions being some kind of alternative currency with which to pay their staff, which was overvalued by the accounting framework and tended to generate unexpectedly good returns. Instead of complaining about the accounting presentation of their pension scheme, which is not going to affect its real cashflows, and instead of looking for double or quits escapes via β€œalternative” assets, the employers should start spending real money to live up to their pension promises.

The fact that companies and individuals may have been able to take remedial action absolves the Chancellor not one jot. It's akin to the idea that house insurance absolves a burglar.

The rights and wrongs of Mr Brown's actions can be argued. However, he took the action in full appreciation of the likely consequences and then chose not to explain those consequences to the general public. In my opinion it is that last choice which brings most shame to Mr Brown:- When he decided to cosh Mr Average he should at least have had the decency to tell him.

....come on Evan, Gordon Brown must own up to this one. He wanted the funds -every year- from our future savings (pensions)so he could spend during his time as chancellor, giving him a good cushion to fund government. I cant fathom why the media TOOK SO LONG to grasp that it would have a long term detrimental effect on final pensions. He HAS robbed from us 'tomorrow' to pay for 'today', what was it spent on?
Don't think Gordon will spin his way out of this one. I'll never ever forgive him for robbing millions of innocent FUTURE pensioners.

An excellent background piece covering issues that are often missed by other reporters.

Another point often missed is that Gordon Brown, in making this change, increased the relative tax burden on companies providing pensions for its employees and reduced it for those that didn't. The fact that he increased the total tax rate by around Β£3.5bn per annum (the full cost is less than Β£5.0bn because pension schemes benefited from the reduction in corporation tax on company profits) and chose to do so in a way that people hardly noticed simply demonstrates a lack of integrity/political nous (delete as appropriate). It doesn't hide the strategic folly of the change.

The fact that it became less attractive for companies to provide pension schemes for employees without doubt contributed to their demise when other environmental factors changed.

Alas history will shortly repeat itself. The Government will, in 5 years time, launch a new National Pension Savings Scheme which, having done away with final salary schemes, will have a similar effect on those good quality occupational money purcase schemes that still remain. The same advice on the impact of this has been provided, and ignored.

We should all be very concerned. There is no economic rationale for Government to run pension schemes other than to ensure all citizens retire with a minimum level of income - something the State Pension should, could, but doesn't, do. We don't want Government to run supermarkets, they don't even run basic utilities which are essential to life (they don't need to as they regulate them instead), we should strongly object to them running pension schemes as well.

This will prove to be the final nail in the coffin.

One of the most galling aspects of the pensions tax raid is that it does not directly affect MPs since they continue to enjoy a defined-benefit scheme. Perhaps that is why even opposition MPs have remained relatively quiet on this matter.

It seems nothing short of scandalous that while the tax raid was destroying many pension schemes, MPs voted to improve their own pension schemes by increasing the accrual rate to one fortieth of final salary each year and by increasing their contributions to 9% of salary.

Effectively, some of the revenue from the pensions tax raid is being used to improve MP's own pensions to a level that ordinary taxpayers can only dream of.

It's high time this ridiculously generous scheme was reviewed. Problem being of course, that in the same way that turkeys don't vote for Christmas, it's not in MPs' interests to demand an inquiry.

Finally the reasons for the recent Government assualts on the Freedom of Information Act become clear.

Obviously the Chancellor wanted a bag of cash to curry favour with voters in 1997, didn't expect Labour to still be in power in 10 years time so he wouldn't have to clean up his own mess. Its ironic that one of his first decisions will lose him the next election, but if anyone deserves it, it's him. Couldn't happen to a more duplicitous guy! He spent how many years and how much effort trying to cover this up?

What a surprise ΒιΆΉΤΌΕΔ economics editor defends Labour minister.

Come on, the bloke destroyed the pensions of everyone who'd bothered to save so he could continue to fund the under class of jobless layabouts he is hoping will make him PM.

He's a great advert for devolution. Let him go back to Scotland and tax the hell out of them for a change.

One of the most galling aspects of the pensions tax raid is that it does not directly affect MPs since they continue to enjoy a defined-benefit scheme. Perhaps that is why even opposition MPs have remained relatively quiet on this matter.

It seems nothing short of scandalous that while the tax raid was destroying many pension schemes, MPs voted to improve their own pension schemes by increasing the accrual rate to one fortieth of final salary each year and by increasing their contributions to 9% of salary.

Effectively, some of the revenue from the pensions tax raid is being used to improve MP's own pensions to a level that ordinary taxpayers can only dream of.

It's high time this ridiculously generous scheme was reviewed. Problem being of course, that in the same way that turkeys don't vote for Christmas, it's not in MPs' interests to demand an inquiry.

There are now well over 100 posts, and I can only find one (apart from Even's own new defence at number 99)defending this scandle. Unless the ΒιΆΉΤΌΕΔ are only listing those posts with negative input to Brown/Labour/Evan, then the vast majority are agreeing that Brown and Co did the raid. (I make it 98%)
I think Evan should look ahead to when Labour may not be in power....

Sorry but you are making excuses for Brown!

Not only that but the ΒιΆΉΤΌΕΔ funded by taxpayers should have made a damn sight more noise when this happened to make the public aware of what was likely to happen.

We pay you handsomely to give us advice had you explained to the British people what would happen, sparing this Government nothing, there would have been enough public outcry to have prevented this theft in the first place.

If anything the ΒιΆΉΤΌΕΔ as the independent TV channel which claims it is there for the public, as a means of holding the executive to account, Let us down badly, in its obsequious kowtowing to new labour!

Unbiased? I think not

To quote Edmund Blackadder: "Seen it, pinched it, spent it."

Sorry but you are making excuses for Brown!

Not only that but the ΒιΆΉΤΌΕΔ funded by taxpayers should have made a damn sight more noise when this happened to make the public aware of what was likely to happen.

We pay you handsomely to give us advice had you explained to the British people what would happen, sparing this Government nothing, there would have been enough public outcry to have prevented this theft in the first place.

If anything the ΒιΆΉΤΌΕΔ as the independent TV channel which claims it is there for the public, as a means of holding the executive to account, Let us down badly, in its obsequious kowtowing to new labour!

Unbiased? I think not

This is one of the most balanced bits of coverage of this story I have seen. People might prefer the simplistic "It's all Brown's fault" version of the pensions crisis, but it's simply not true.

For a start the Β£5bn a year figure is wrong, as the Pensions Policy Institute pointed out about 18 months ago. At max it's Β£3.5bn a year, and it may well be lower than than. Still important but in the same sort of territory as the amount taken out of pension funds by employers' contributions holidays.

Secondly factors like the halving of the FTSE after 2000 and increased longevity have been far bigger cost pressures on schemes. When I was a pension fund trustee (until about 3 months ago) the thing we were most afraid of was changes to the actuaries assumptions about mortality since these could at a stroke increase our liabilities significantly. Taxation of dividend income never got mentioned.

On the political point, the Tories got their first. The ACT credit used to 33%, then 25%, then 20%. What Brown did was to scrap it, but pension funds were already having their dividend income taxed because of political intervention. If you really think this 'caused' the pensions crisis (which I don't) then Lamont and Lawson deserve some of the blame. Maybe someone needs to do a Freedom of Information request on the advice they were given.

So even with a second bite at the cherry to try and convince us you are not just another ΒιΆΉΤΌΕΔ Labour Party aplogist, you fail miserably. If nothing else, stop referring to a Β£5billion tax rise when it is actually Β£5billion pounds PER ANNUM. This equates to roughly Β£75billion pounds so far. It is this kind of disingenuous reporting that makes people despair of your objectivity. Anyone with the slightest comprehension of the pensions industry predicted the dire consequences of this tax grab 10 years ago and have been proved correct. Still, as it affects neither MP's nor employees of the ΒιΆΉΤΌΕΔ, both having final salary pensions funded by involuntary contributions from taxpayers, why should they concern themselves with the fact that one of the greatest pension systems in the world has been utterly destroyed in a mere 10 years of Labour 'government'?

Evan

Congratulations on a very clear, comprehensive and balanced blog on a complicated subject.

This should be made compulsory reading for any politician before they comment.

Can Evan now see from the vast majority of counter opinions about his article that the genral voting public does not agree with either him or the Chancellor?

It is illustrative behaviour of all delusional regimes that they seek to 'inform' their constituents about the benefits of mis-guided policy.

It was Mrs Thatcher who said that she had to win the argument before she won the vote. She found out to her cost what happens when you don't bother to win the argument but explain why you are right and the rest of the public is wrong. it was ten years uto her reign when this happened.

Have the Chancellor and Mr Davies noticed any similarities with their attempts to tell us why they were right and we are wrong about his disasterous pensions decisons; in the face of overwhelming evidence to the contrary?

Wake up.

Evan's explanation is so dismally new Labour.
It's interesting that all those years ago much of the clientele in the Savile Arms at Hunsworth correctly predicted what what going to transpire.
Can Ed Balls provide proof of evidence for the widespread support of industry as he claims? I suggest Mr Davies finds the answer to that one, as it forms much of the main story now. Mr Davies could also estimate how much poorer the average company pension is as a result of the change and/or how much longer the pension holder has to work to make back his/her pension.

Evan Davis writes: β€œIt is to make a slightly deeper point about tax… which is that if you want to raise several billion pounds, it will always have an impact on us as individuals, however you choose to apply it. If you put it on income tax, employees pay it; if you put in employers’ NI, it impacts on employees via the wages they get; if you put it on VAT, we pay it on prices in the shops. If you put it on company profits, it impacts pension funds shareholdings; if you put it on pension funds, it comes back to us via our pension contributions.”

This β€œdeeper point” is deeply misleading. A tax on pension funds is a tax only one sector of society; on those who pay into pension funds – those employed by the private sector. In other words, it is not a tax on those employed by the state.

It is also a tax on the future value of private sector retirement funds – a tax on the future incomes of only one group. It is not a tax on the value of public sector retirement funds – public sector staff are not affected by it at all. The tax does not β€œimpact on” anyone employed by the state.

It only has β€œan impact on us as individuals” if we as individuals are employed in the private sector. In effect, a pension fund tax ensures that private sector individuals subsidise everyone else. That’s not exactly like income tax, NI or VAT.

Oh, and on the equivocal advice point, has anyone seen any civil service comments suggesting that taxing pension funds was a really, really good idea?

Evan - your point made under comment No. 99 is that this was a tax rise and however taxes are raised we the public end up paying. True, but in this instance the burden of the tax rise has been not been carried by the public - it's been carried and has been devistating for some individuals whilst others (public sector workers etc.) have actually benefited and this is a scandal. How can any government justify targetting and reducing certain people to poverty having worked and contributed all their lives simply to fund the pensions of others who are in their direct employ - it's the sort of thing Mugarbe does.

ΒιΆΉΤΌΕΔ final salary pension, local governement final salary pension, MP's final salary pension, public sector final salary pensions, All SAVED!.

The mugs who actually generate income for this country PAY THROUGH THE NOSE TWICE.

A really good article by Evan.

The key politically is that for almost 100 years, particularly since the war, chancellors from both parties have been trying to encourage and promote pension schemes. Some Acts even explicitly had that as their objective.

Gordon Brown is the only chancellor I can think of who has put so much effort into dismanteling these incentives to pension schemes. Other factors conspired against them, but he actively contributed to the problems. That fact will never leave him.

The tax raid on pensions has surely also contributed to the massive over-valuation in property prices that we are now seeing.

As people have realised that pensions are no longer a viable means of ensuring a comfortable retirement, an increasing number have chosen to turn their backs on pensions altogether and invest in property instead to provide for their retirement.

This has contributed to the property sector becoming increasingly over-valued which in turn, thanks largely to the massive surge in buy-to-let investors, has resulted in a lack of affordable homes for first-time buyers in many areas.

A property crash could have devastating consequences for people who have given up on pensions.

The comments on FOI posted here are very interesting.

We have been trying to ascertain, by FOI, if the Treasury had any involvement in or views on the unusual events at the MPC meeting in August 2005. That was the meeting where the the governor of the Bank Of England felt so strongly that he voted against the majority for the first time and against the rate cut. The very next month the Chancellor appeared on TV claiming that we had "survived a house price bubble".

However we have come up against a brick wall on each occasion. Any tips on how to navigate it would be very welcome.

Blimey Evan, you seem to have stirred a hornets nest of irate Conservative supporters with your crystal clear, well written analysis.

The paranoia is eye-popping! There are countless posts accusing you of being in the pay of the Labour Party.

It seems the British public likes its information skewed through the prism of the rightwing press - and the truth can go hang. Bizarre.

To David in post #147.

Are you sure? You don't remember the adverts comparing membership of occupational pension schemes to being chained up? It was part of an attempt to boost personal pensions. Also as I said earlier have a look at what Lawson and Lamont did.

Your article is shocking. From the 1920s onwards there was an explicit agreement between the Inland Revenue and the pensions industry that tax should not be paid on pension contributions, and their investments, until the pensioner started to draw his pension. That fundamnetal principle was overthrown by Brown`s tax measure.

The consequences are, and to him, were clear. Either businesses had to pick up the Β£5 billion shortfall or the pension funds would be unable to meet their obligations long term. No wonder thousands of such schemes have disappeared. In my own case it has already cost the fund of which I am a member no less than Β£100 million.

Your talk about the complications of corporation tax are mere sophistry calculated to blow a smokescreen over one of the most disgraceful decisions to have been made by the Government and this Chancellor.

Dear Evan
There are some basic facts here. Gordon Browns decison to do something on pensions was a cotrollable decision. He took money out of the pemnsions system. Gordons staff at the Treasury have spent 2 years resisting publication of the advice papers at the time!! Pension funds are still in deficit. If the money was put back in they would be less in deficit.
So please stop trying to defend this dastardly deed.
Gordon and his cronies knew what they were doing and between them they have badly damaged the pension system in this country. The number of people without pensions is increasing.

Not very sensible decision on Gordons part as it moves costs back onto the state and taxpayer having to subsidise the poorer pensioners.

All I've heard from labour politicians since coming to power in 1997 is about having a fair society, a fair Britain. How come then that in Brown's first Budget he raids private sector pension funds to the tune of Β£5 billion every year which he knew full well would have no effect on his and other public servants pensions, whilst at virtually the same time labour politicians voted themselves a huge increase in their already bloated pensions at virtually no extra cost to themselves. Fair? More like I'm alright Jack. One more thing Evan why don't you and other commentators ever ask Brown how his tax raid has affected his own pension.

some commentators - and Evan Davis himself - have made much of the pension fund surpluses in 1997 - as if large pension fund surpluses would be expected to be a continuing fact of life.

Putting aside the fact that they in fact disappeared almost completely over the following five years, the way that pension funds were regulated at the time was such that pension funds were forced to reduce their surpluses by the Inland Revenue. I've asked the actuary of my pension fund for chapter and verse. Here's his response (anonymised):

"All UK final salary schemes were subject to controls on surpluses
between 6 April 1987 and 5 April 2006. The main regulations were set out in:

The Pension Scheme Surpluses (Valuation) Regulations 1987, and
The Pension Scheme Surpluses (Administration) Regulations 1987

These regulations required the actuary for a pension scheme to submit a certificate to the Inland Revenue every 3 years to confirm that the pension scheme either did not have a statutory surplus or, if it did, to set out what action was being taken to reduce the surplus. We produced these certificates for the * * * * schemes over the years - including the time when there was a surplus and action had to be taken to reduce it.

If they had not approved the action being taken, their sanction would
have been to tax the investments which represented that part of the
scheme's assets in excess of the statutory maximum (ie part of the
annual growth in the value of the assets would have been taxed)."

I have to say that this is a very wordy analysis just to tell us that our pensions are going to be greatly diminished and G.B. is not to blame! The chancellor is ultimately responsible. At my level in the game, there is only so much that I can contribute without impacting on my day-to-day living along the way to my pension. It amuses me that the latest handout [sic] about pensions mentions maximums of 1.5m! That we been told, all of us, to ensure provision is made for our retirement and I thought I'd done that. My feelings are not tempered by a chancellor who knowingly sets out to prevent it and then wastes those taxes on pet projects. Little wonder then, that the younger generation are turning their backs on pensions altogether.

"Yes, I get the impression that Brown, more than any other New Labour politician, lives rigidly by the Daily Mail test: if you are going to say something that could by some extreme stretch of the imagination be twisted negatively by the Daily Mail, don't."

I very much doubt that Gordon Brown is as obsessed with the Daily Mail as you and the ΒιΆΉΤΌΕΔ are.

There are some important points missing from this analysis:

1. Not all pension funds are company schemes of the kind discussed here. "Money purchase" schemes were already commonplace when this tax change came in, and are now the majority. Under these, we contribute our OWN money (already net of NICs, for most people) and that money is then locked-in for life. We have to keep our end of this tax deal. GORDON BROWN DID NOT KEEP HIS.

2. "Only" around 80% of the Β£5 billion hit landed on pension funds. The remaining Β£1 billion (per year) hits a range of other unfortunates, notably Charities. WHAT DID CHARITIES DO TO DESERVE THIS ?

Evan,

when are you going to answer the question relating to the fact that "hard working families" - to quote your friend Gordon, had their retirement plans shredded without warning? These people were made to pay twice, once in lost pensions and again for council and other public sector employees.

And can you please make a request that anyone who expresses any support for your point of view and those of the Chancellor for that matter, should declare simultaneously if they are or are not a public sector employee? This is the only fair way for this debate to continue.

The number of public sector employees now out-numbers the private sector. Those lucky enough to be looking forward to a full pension in the public sector seem to have either gone silent on your blog or are unprepared to declare their status.

Cat got their tongue?

"For a start the Β£5bn a year figure is wrong, as the Pensions Policy Institute pointed out about 18 months ago. At max it's Β£3.5bn a year, and it may well be lower"

Tom P

Well Tom, like all apologists for Gordon's pension theft, you live in a world of delusion. The actual amount is now calculated to be Β£7 Billion, twice your estimate. Please tell us how you arrive at your figure. (Tell Gordon too, as he will want to use it !)
Your political point is weak - if the Conservative change to the credit was wrong, why did Gordon not reverse it? Because he obviously thought it was not enough - and a good idea.
The only consolation is that this is yet another nail in the coffin of this rotten lying government.

The truly inexcusable thing about this policy is that the burden of this will fall heaviest not on us, but on our children. It is they who will have to pay when the pension provisions of today's workers turn out to be inadequate.

The same goes for the debts that Brown has built up, dspite a decade of unbroken economic growth. So much for his golden rule which says, in essence, "borrow when times are tough and repay when times are good". Brown has been borrowing in the good times, so Lord knows what we'll do when the inevitable downturn comes.

Gordon Brown has, in effect, taxed our children and hocked the country's future to pay for his profligacy.

This article is misleading.

If you invest Β£1b pension assets for 30 years, growing 6% PA, with 3% net yield, then after 30 years, you have

Β£1b * 1.09 ^ 30 = Β£13.27bln

If you can reclaim the 20% tax credit, then the 3% becomes 3.75%, and after 30 years you have

Β£1b * 1.075 ^ 30 = Β£16.30bln

Thus Gordon Brown's tax cuts the future value by about 19% based on this simple model. With pension shortfalls around this amount, it's clear that the blame can be placed squarely at the foot of Gordon Brown. Not stock market crashes, not avaricious financial services providers - the 0.75% PA charge, compounded, from Mr. Brown is the real pension fund killer.

(Incidentally, Norman Lamont did reduce the tax credit from 25% to 20%, which would have cost about 6% of the original amount, but with income tax rates falling from 25% then to 20% now, there is little long-term effect).

You are all missing the point. What did Mr Brown do with the extra 5 Billion per year he raised in taxes which is quantifiable as value for money! If this guy was in a 'proper' companies employ, he would have sacked ages ago. !

I think your piece is a simple piece of rotten borough self serving illusion. Geaf Randle got it right but the ΒιΆΉΤΌΕΔ are far to frigtened of the Government to have an independent perspective. A tax on pension is simple evil, lyng and hiding rotten, blamimng the CBI gutless and the whole thingshows we need independent trnsparent analysis which hold Ministers to personla acount for damaging the lives of millions. Rail track get a big fine for mismangement Brown should recieve the same for his theft of oppetunity and savings

Already this is history for Gordon as the caravan moves onto the next 'event'.

Some points remain, notably as the remarkable MP Frank Fields pointed out 'it is not worth 40% of the wroking population saving for a pension (because of the moral hazard created by the pension credits).

England is the only developed country which apparently does not trust its people with their pension and insists that they purchase an annuity instead of being able to draw the pension pot as required.

This particular blog thread told us almost as much subliminably about Evan Davis and the ΒιΆΉΤΌΕΔ ingrained 'soft-left' bias.

I personally am 'no wing', not left, not right, not centre but I do object to being compelled to fund an organisation that is one of these i.e. the ΒιΆΉΤΌΕΔ.

Congratulations Evan!

Your article might seem intially to be a biased but on examination turns out to be a good in-depth analysis of a very intricate subject. Your professional journalistic and editorial skill is to be aplauded.

You have managed to explain a lot of things that normally go over the head of most people and put it into more layman terms.

I liked your "tongue in cheek" comments and your skill at "flying" this "kite". It certainly got your readers taking pot-shots at the points you raised and thus gave them a forum to vent their feelings. Well done!

Now if I can just get you to apply yourself to explaining to the rest of us about the other anomalous taxes . . . for example "what is the true purpose of stamp duty, and why is skewed the way it is with apparantly arbitary levels and rates?".

Of course there is a whole raft of bizare rules and regulations, that appear to me, to distort the picture rather than try making life simpler. Are these merely political whims or smoke screens, rather than rational decisions with a specific purpose.

Good hunting - look forward to more of your articles if they are like this last one.

I would be interested to read a macroeconomic analysis of Brown's move in 1997. He has certainly cost the pension funds dear, but over the last ten years he must have raised about Β£50 billion for the exchequer: this is revenue that otherwise would have been raised through other taxes that we would have had to pay.
So one question is whether the extra Β£50 billion that we have had to spend over the last ten years has benefited us sufficiently to offset the reduction in our pensions in the future. Perhaps not, but people should understand that the loss to the pensions funds is not the whole story.

While I can accept that the problem is not entirely Gordon's doing, I dislike the fact that he claims all the credit when things are going well but tries to shift the blame on to everyone else when things go awry.

I believe you are taxed 3 times.
1) corporate profits are taxed
2) dividend payments to the pension companies are taxed
3) when you receive the pension it is subject to personal income tax.

The reason Brown did not put up a warning sign for his 'obstruction' was because it was a toll booth rather than a small item in the road. A toll booth you can't miss.
When I'm working in my sixties, holding back younger people from promotion, I'll remind them of why.

This article was published on 2nd April - already it has 170 responses ; most of which state or inply that on this issue , Gordon Brown was in the wrong to assume private pension schemes could cope.
From the comments , I also gleen that most correspondents do not like the apologetic tone (for him) of your article either - what is your intention by writing it ? We have lost a lot of money and judging by the current budget deficit so has the chancellor so where has it gone?
Probably to pay for MP's final salary scheme - the best in Britain.

One final thought. We should remember that unlike private pension schemes, future governments are under no legal compulsion to pay public sector pensions.

If, in 20 years time, the government of the day can convince enough voters that the country can no longer afford the public sector pension bills we could expect to see the loss of index linking and possibly cuts in pensions.

Keith.

The changes that Gordon Brown imposed on the private pension system were fundamentally unfair to the point of corruption. Government Ministers, MPs and Government employees have the benefit of pensions linked to their final salaries and then index-linked. This pension scheme is unfunded and is paid out of current taxation. The pensions remain far more generous than most private schemes whether or not the country is prospering. GB's changes took away from every funded pension scheme but not from his own nor from that of his advisers, nor from those of the MPs who have to vote on these matters.

This is unfair and bad enough. When one adds in the fact that this Labour Government has made vast additions to the numbers of government employees who benefit from the same privileged pension scheme and so has increased the number of people beholden to the Government it has become morally corrupt.

If the Government pension scheme were to be fundamentally changed to become funded,the size of Goverment pensions would become dependent on the performance of the bond and stock markets as for the rest of the population. This might require a miracle to achieve but it would vastly increase the unity of interest across the whole population of our country.

The tax changes in the first two Brown Budgets were necessary reforms that led directly to reductions in rates of both Income Tax and Company Tax. Those cuts more than compensated individuals and companies for the changes to the taxing of dividends. Moreover, they ensured a more equitable tax regime between different forms of savings and company investments.
The biggest "blows" to pension funds have been the transferability of accrued pension rights for people who transfer employers (1991), the requirement to use government bonds for all annuities (1995) and the 2004 introduction of FRS17 accounting rules. Beside those changes, the dividend tax change is very small beer.

Mit Roy (See post #75) - your comment is risible. Of course if you retired in '97 you would NOT have noticed. Greedy Bags was cheating every FUTURE pensioner after that date, and therefore not you. But as you have your pension, you probably don't care about the rest of us! I'm sorry, but you are the proof that we get the politicians we deserve; if you can't understand how they are stealing from you, how can you begin to complain about it?

Well done Evan on explaining the background to the tax changes. Perhaps more on the other factors that hit pension funds (stock market declines, changes to accounting rules) would have been useful as well.

I think this issue has been stoked up by some people because:
1 - It was a technical tax change that few understood and - so - was easy to misrepresent
2 - It is a middle class subsidy, since few low-skilled or unskilled jobs have pension schemes.

Simply blaming tax changes is not an excuse - trustees and employers should be acting on actuarial advice. Many pensioners will not retire for at least another two decades, so increasing contributions need not be a significant expense over the long term.

Having seen the losses between 2000-05 on my private pension, I am glad that I am in a well-run, private sector, final salary scheme.

Sadly Evan you have fallen for the spin from the Chancellor and have written a revisionist version of events. True the Tories introduced the threat of tax on over funded pension funds, but to say that Gordon Brown is not responsible for the closure of the final salary pension schemes is an outrageous statement.

Of course Brown did not himself close down final pension schemes, but he has made it impossible for them to continue as they were.If you are running a final pension scheme and your company has lost 20% of its annual investment income which with compounding makes it worse every year and an increase in the life expectancy of your pensioners, new rules imposed by Gordon Brown as to the funding requirements of pensions, and compounded by a stock market crash casued by 9/11 and other factors, you would be pretty stupid and not doing your fiducary duty to take steps to avoid what could be an open abyss. But there were 2 catalysing event by Brown who has destroyed a pension system that had more 2x funds to its name than the rest of Europe's pension schemes put together. More importantly this was money that existed and not a drain on future taxpayer funding gold plated civil service pensions and the general state scheme.

This was a Stalinist attack on the middle classes - pure and simple - Brown hates the fact that they try to be independent of the State apparatus when they can. He wants to have everyone beholden to him, so he can decide what he will allow you to have. Independence from the State is an anathema to an old class war collectivist like Brown.

My respect for you has sadly been diminished by your article, perhaps you should read Jeff Randall's analysis on this for the real world effects.

it's always being claimed Blair wants a legacy; here it is.

his legacy will be the inability to reign in a Chancellor hell bent on destroying the wealth of half of the 'hard working' people of this country to the benefit of the public sector...who have some of the worst attendance records in history.

is legacy will be the chronic unerperformance of this country relative to our European peers as a result if his chanceollor's free reign - the Uk stock marekt has underperformed the European indicies by 40% since the recovery began in early 2003 vs 36% outpreformance by Germany.

his legacy will be the destruction of the savings industry in this country - the corner stone of all wealth creation.

congratulations Mr Brown and Mr Blair - now spin your way out of that one

The most interesting point is, I think, Brown's intention to raise taxes by stealth right from the word go, which seems to have been the hallmark of his time as Chancellor.

I have noticed there has been a move away from intellectual rigour under this Government. It has spread like wildfire throughout the public sector. It seems the motto is live for today and hope for something to turn up tomorrow to assauge the damage that has already been done due to the failure to look ahead.
This is the true cause of the pensions problem and it is not the only problem. PFI is another time bomb ticking away.

The pensions problem was always one which would have its detrimental effects in the future and so it must have seemed attractive in 1997 to help oneself to a nice pile of "jam today". The problem is that the future is now here and so is Mr. Brown. Perhaps he hoped to be occupying a different office when the "chickens came home to roost".

Part of the problem arising from Gordon's raid on pensions was that Companies with defined benefit schemes had to make up the money taken, at the expense of the shareholder. So dividends fell. So all shareholders suffered and share values fell. So funds owning such shares not only had to make up the missing tax on dividends, they had to make up the second shortfall caused by reduced dividends, and the third shortfall, caused by the devaluation of their share portfolio.

Of course the member in such defined benefit scheme is fully protected - it's only the shareholders who suffer, and everyone (in the private sector) with a Money Purchase pension fund who really get shafted.

Any employer in their right mind would close their schemes to new members and/or close it entirely.

What amazes me is that anyone is now surprised that schemes have been closing at such a rate.

Will you be opening a new blog about todays vote of no confidence in the Chancellor? Or will you be opening another apologia for his inability to maintain what was the strongest private pension system in the world? Or will you be attempting to explain away one of the biggest single malicious transfers of wealth in the history of the UK, out of the private into the public sector?

Let the debate begin!

I am a 19 year old training to be an accountant, with the talk of all the problems of the state pension, I decided to join my company's pension scheme, a defined benefit pension scheme. However I do feel that by the time I retire either my personal pension plan will be worth nothing due to shortfalls detailed above, and that there will be little or no state pension for me when I eventually retire. I believe this to be a feeling with several young workers at the moment, many of whom have not joined the pension scheme and are considerably older than myself. Many people believe that a second house to be a safer form of pension.

What a load of complaisant, narrow-minded, left-wing claptrap!

"...it was open to us to keep our pensions alive, by investing more in them ... employers ... were free to increase contributions but chose instead to accelerate the closure of final salary schemes."

All very well if you have an employer's pension scheme What about my private pension scheme? Why should I pay more all of a sudden, when I am taking responsibility for my own future?

"...there were enough other, bigger things going on that did more damage."

Except that some of them were dependent upon the tax raid. Share prices are not being supported and have not recovered as quickly as they should because the money is going to waste in the low-productivity public sector, not being reinvested in the stock market. So actually the reduction in value of pensions has been greater than the money gained to the exchequer - a very poor decision.

One factor commonly blamed is the pensions holidays taken when pensions were well-funded. However at the time there was no indication that Labour would take this money out of pensions. Had this not happened then the funds would still be able to cover their liabilities, and the holidays would look like extremely wise decisions, allowing the companies involved to invest elsewhere.

It is Brown who made a decision which was, in effect, retrospective since it suddenly reduced value in an asset some people did not have the time or the money to recover. He in retrospect maks the holidays look a bad idea. Maybe he was playing politics with the tax regime, as is his habit.

I remember the heady days of the '97 election. It was my first year at university and the first election I was entitled to vote in. All my flatmates bar one (Dan from Surrey) were hoping for a Labour victory.

I remember the announcement regarding pension funds. Dan pointed out the potential problems (economics student) and told us to 'mark his words'. Pensions didn't really mean much to me back then, but he's been proved absolutely correct. Brown has destroyed the pension system.

I see absolutely no point getting a pension now. Instead, I'm looking into emigrating to Australia. If things work out, Britain will be losing another higher income tax payer. Don't worry though, Labour's open door immigration policy will ensure that lots of low skilled, low earners will flock to take my place...

From the general tone of the comments so far it seems to me that your article appears to be too sympathetic to the Chancellor. It is the biggest SINGLE adverse effect on our pensions by far. The Government excuses of 'dotcom boom' or longevity do not stand up. Pension fund managers are like Warren Buffet - long term , erring on the side of caution , investing only when its safe. By the end of his lifetime only M P's will enjoy a final salary pension scheme - to which they contribute little and are entitled to receive after only 10 years service - not 40.
Regards , Norman

Pensions - a great and complicated issue.

Our pensions "problem" is the result of a number of factors of which GB is more to blame than just the tax on dividends

1. During the bull market in equities occupational finanl salary schemes took on too muchg exposure to equities which enabled them to use a highert discouint rate and so minimise the net present value of future pension liabilities ie the pension fund became a profit centre contribution holidyas etc- when this profit centre became a loss center who takes the blame not the company but the fall in the stcok market veruy conveneinet but not much help to those the lose out.

Why did the Govt not do something about this?

2. The current State pension scheme is a Ponzi scheme ie furture pensioners are funded by current tax payers.

3. PFI deals are sucking in tax revenues and having an impact on public sector pensions ie less funds for public services leads to low or no pay rise menas that the future pension liability also falls.

4. Ironically we live in a era of financial innovation but the pain of losing the profit centre of occupational pensions means final salary schemes are deemed unattractive. I would suggest the opposite and raise a challenge to employers (and smart financial
services firms) that no longer offer final salary schemes - its possible and who knows you may get one over on your competitors that don't offer a final slary scheme

5. With respect to this or any Govt of whichever colour the addiction to soundbite policmaking will never help us the people of this country and instead we will end up paying for the Govts' mistakes while MPs and the Govt enjoy their generous pensions - unfortunately as we all know its very politician for themself

OK. So could you explain why the guarantees that were supposedly protecting my pension failed, yet the pensions of the politicians were unaffected, and are now even in greater health?.

When these specific blog threads 'naturally' terminate, with respect to the posters input, I think that Evan might consider writing a final summary of the thread and then freezing it.

Well, it's December 2007.

Prudence has turned into Mr Bean.

The credit squeeze is upon us.

House prices (many people's alternate pension scheme) are about to collapse.

Darling has put in NR 5 years' take from the pension raid.

What do you have to say now about Brown's 1997 tax wheeze?