As we bid farewell to Alistair Darling it is worth revisiting one of the more unedifying roles he played in British life.
Little mentioned now by the media is the pensions scandal which left thousands of workers without the pension they expected and to which they had contributed throughout their working life – simply because their employer had gone out of business.
As Work and Pensions Secretary and later as Chancellor Darling played a key role in how this was handled. He is accused of encouraging workers to put their money into company schemes without ensuring they were guaranteed in the event of corporate collapse and of refusing to compensate them adequately.
Before 1997 and the arrival of a Labour government, in the event of a company being declared bankrupt, those who did not receive their entitlement from the occupational fund were taken back into the state pension. But after the Pensions Act came into effect in 1997 other guarantees were put in place and the Government promised that if a company failed, it would still pay workers their pensions.
This encouraged people to trust company schemes which appeared to be rock solid and thousands put their money and faith in their occupational scheme. For example, having paid the married woman’s stamp and opted for a state second pension a woman could add her own savings to the scheme leaving all her pension eggs in the company basket. Official promises seemed cast-iron so that when a company went bust – before 2004 – there should have been no cause for concern.
However, that was not the true situation because in the event of company failure, a statutory priority order on the company assets would come into place. That meant that anybody who had already retired was entitled to their full pension, but those who had not reached retirement age when the company went under got nothing.
Over 120,000 workers were affected – their contributions and hopes for retirement wiped out. The Government set up the Financial Assistance Scheme to help some of the 125,000 affected but when they attempted to use taxpayers money to compensate the pensioners, Darling, then as Chancellor and Gordon Brown as Prime Minister, reneged. They overruled their Cabinet and broke the promise to help restore their pensions.
The Pensions Action Group which fights for pensioner justice described it as betrayal. It was also contrasted with the swift action taken by Darling and Brown to bail out savers in Northern Rock who had, as savers and investors, taken a calculated risk without being encouraged by government ministers to do so as pensioners had.
Dr Ros Altmann, a governor of the London School of Economics and former adviser to the Treasury, who is spokesman for the pensions action group, said: “It does not matter if you are two weeks off retirement or two years into your employment, all employees who have not retired at the time when the company goes bust are classed as the same. If there is not enough money from the scheme assets, this group of people gets nothing. The financial ombudsman found out the guarantees the Government made were only for 50 per cent, and this percentage has been reduced twice since 1997 without the knowledge of the public. The Government knew and it kept on giving the public false assurances.”
Altmann explained Brown and Darling’s cynical spinning of what was “without doubt, the worst pensions scandal ever seen in the UK”. They promised to pay 80% of the pensions back to the 125,000 people affected, costing £8bn. What has actually happened since then is that the government have invented something called a core pension that doesn’t account for inflation, tax-free lump sums, many widow’s benefits and other dependent benefits, ill health and early retirement benefits, or pension starting ages. The Government then works out 80% of what’s left and takes 22% tax off it. the Financial Assistance Scheme – which had been entirely ‘designed to fool the public’ – has only paid out £4m since 2004, partially helping just 2000 people.”
Some of the dispossessed have since committed suicide, having had no idea that there was any risk to their pension. Alistair Darling, however, was told about the risks in 1999 but the government continued to encourage people to join the pensions funds. Perhaps, both as culpable politician and well-remunerated public pensioner, he may think an apology is in order?
This and other aspects of Darling’s career have hardly appeared since he took on the role of Better Together chairman and seem to have been dismissed as irrelevant to the current status of what colleagues have called a thoroughly decent and principled man. There are 125,000 British workers with a different view.