Gordon Brown knew the devastating cost to British workers of his pension fund raid

The wannabe Prime Minister's raid on pension funds has condemned millions of Britons to poverty in retirement....................

Brown knew cost of pension fund raid

Alex Brummer, Daily Mail

15 February 2006

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GORDON Brown was warned he would rob pension funds of nearly £12bn when he decided to bring in a tax on private pensions in 1997.

The Chancellor's raid on funds is widely blamed for creating the crisis which has left huge shortfalls in pension pots and forced hundreds of firms to wind up their final salary schemes.

Tony Blair is now considering raising retirement age to 67 or 68 to plug the gap left by Mr Brown's decision - which abolished tax relief on income from share dividends, a key source of cash for pension funds.

But Treasury documents, released following a Freedom of Information request by the Daily Mail, show Mr Brown was well aware of the devastating financial consequences this would have on those saving for their retirement.

Documents in the Treasury archive show the tax, introduced in the Chancellor's first Budget, could cut the income of private pension schemes by up to 10%.

It calculated that Mr Brown would be able to increase his own coffers, at the expense of savers, by at least £6.2bn in the first 20 months and £11.6bn over the first two and a half years.

Treasury officials were banking on a rise in the stock market to plug the gap left.

Instead, share prices plummeted in 2001 and 2002 - leaving millions of workers facing the prospect of working longer to earn a decent retirement fund.

Experts believe the Treasury decision to target private pensions helped create the £75bn black hole in the private pensions schemes of Britain's top 100 companies.

Experts say that if the missing cash had been invested and earned income in the normal way, private pensions would be up to £100bn better off than they are today.

The Treasury refused to release the full background documents, memos and assessments behind the decision to tax pension funds on the grounds that 'there are obvious sensitivities about the release of this particular information'.

But it did provide computer links directly to the Treasury archive of the data behind Labour's first budget.

The information, which has never been released, shows that in the period from July 1997 to April 1998 the elimination of the tax advantage enjoyed by pension funds would immediately hand Mr Brown £2.3bn.

Over the first full year, up to April 1999, his officials estimated he would be able to pocket a further £3.9bn that would have gone towards pensions, rising to £5.4bn the following year.

In the event, Mr Brown has earned even more than he expected. The dividend tax has created more income for Labour than almost any measure the Treasury has taken in the eight and half years that it has been in office.

The Treasury noted in advance of the 1997 budget that the removal of the tax benefit for pension funds would 'raise around £3,500m in a full year,' accordingto a Treasury background document. 'This is the equivalent to between 5% and 10% of pension schemes' total income,' the paper adds.

What is clear from the Treasury archive is that the Government was clearly gambling on a sharp rise in the stock market to plug the chasm opened in pension funds by the tax raid.

'Pension schemes will benefit from the better climate for investment by companies,' according to an Inland Revenue document in the Treasury archive.

The documents suggest that no thought was given to the combined impact of the new tax and a collapse in the stock market, which occurred in

2001 and 2002.

In the event, the Government reaped the worst of both worlds. Pension funds were starved of income at a time when they most needed it because of a bear market in shares.

In December, the Pensions Commission headed by Lord Turner warned that 'voluntary private pension provision is not growing: rather it is in serious and irreversible decline'.

'Employers' willingness voluntarily to provide pensions is falling and initiatives to stimulate personal pensions saving have not worked,' the Commission reported.

Philip Hammond, Tory spokesman for work and pensions, said: 'While the Government are posturing about solving the pensions crisis, this information exposes Gordon Brown as the author of the pensions crisis.'

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Reply to
Crowley
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"Derek ^" wrote

Was it a "defined contribution" scheme? ...

"Derek ^" wrote

... so it was a "defined benefit" scheme?

In that case, the employer was unlikely to pay only 5% throughout, unless the investment performance of the fund was rather good, or the mortality/leaver experience rather advantageous.

"Derek ^" wrote

There was a time when the split of the average lifetime between "childhood" / "working" / "retirement" was roughly 20% / 70% / 10%.

Nowadays it's more like 25% / 50% / 25%.

Previously, people saved for 70% of their lifetime to fund the last 10% of their lifetime (saving for ** 7 ** times as long as retired).

Now they save for 50% of their lifetime to fund the last 25% of their lifetime (saving for ** 2 ** times as long as retired).

Guess what? You need to save a much larger proportion of earnings over 50% of lifetime to fund the last 25% of lifetime, than you would need to save over 70% of lifetime to fund the last 10%!!

So, even though people start working later on average (more full-time further education), and live for much longer, WHY do they still all want to retire by age 60?

Reply to
Tim

Ress Mogg in the Mail today says that Brown wants to destroy pensions to make people dependent on the state. Thus they vote Labour.

Reply to
MikeinCamden

To me, that defies logic. Surely if the state 'stole' your pension, the last thing you'd want to do would be to vote for the party that did it?

Reply to
Paul Hyett

New Labour achieved their 66 seat majority on a minority of the vote ie just 22% of the total electorate voted for them (34% of those who voted)

78% of the electorate did not vote for New Labour and 66% voted for other parties.

HTH

Reply to
Crowley

Because so many people work in soul-destroying jobs that they hate and which require them to live in areas where they'd rather not be?

Mark

Reply to
mmaker

wrote

Then they simply need to save the much larger proportion of their earnings, which will give them the pension they require in retirement -- or "downsize" their outgoings after retirement, or 'semi-retire' by taking on a part-time "non-soul-destroying" job.

What they *shouldn't* expect, is that paying a small amount, for a short time, into a pension will provide them with a large amount for a long time after retiring relatively early!

Reply to
Tim

Sure, they can 'simply' save half their income and hope that the pension company will be able to keep up with inflation. That will be very simple after paying maybe 50% of their income in one tax or another, paying 30-40% of the rest on a mortgage and then paying living costs.

Oh dear, that's over 150% of their income gone.

You seem to be under the misaprehension that the majority of the British public can not only think forty years ahead, but can actually do maths.

Mark

Reply to
mmaker

To me, that defies logic. Surely if the state 'stole' your pension, the

last thing you'd want to do would be to vote for the party that did it?

Not if the response is assymetrical as Brown will assume. That is to say that more of those gaining from extra benefits now vote Labour than those losing withdraw their votes. Since those with pensions are more likely to be Tory voters it is a reasonable supposition

Reply to
MikeinCamden

Show me a well-paid 'outreach worker' not voting Labour!

Reply to
MikeinCamden

I know a number of 'outreach' workers who don't vote labour. IME they tend to be part time job sharers. Not very well paid.

Reply to
AlanG

From:

Khan's teaching work with disabled youngsters was at a school in Leeds, where he was a "learning mentor".

A family friend said he had "connections" to the Islamic Bookshop in Leeds as a volunteer - but rarely discussed it.

Wife Hasina, 28, worked in schools in Dewsbury as a neighbourhood enrichment officer.

[...]

Both properties were raided by police on Tuesday as part of a series of swoops in West Yorkshire. A number of cars and other possessions were removed for forensic examination.

*******************************Extract Ends***********************

Kept them in bombs !

DG

Reply to
Derek ^

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