Help the aged

Andrew Smith, the Work and Pensions Secretary, resigned this week, so he says, in order to spend more time with his family. Or maybe he was peeved at some of the comments made about him by his colleagues. What is certain is that he didn’t resign for the reason he ought to have done: that the government’s policy on pensions has been a failure.

In 1997 our pension pots were brimming. Alone in Europe we looked forward to a well-heeled old age without impoverishing future taxpayers. Just seven years later, however, many seem doomed to a retirement on baked beans — bought with means-tested benefits.

The change in fortunes for pensioners, to be fair, can partly be blamed on the collapse of the stock market bubble. But this is far from the whole story. The FTSE-100 Index now stands a little higher than it did in May 1997, yet our collected pension fund assets have fallen in value from £812 billion to £708 billion. One of the reasons is that the Chancellor, in one of his first acts in office, damaged the incentive to contribute to a pension fund by abolishing tax relief on dividends. He perhaps calculated that few would understand this tax rise and that in any case the booming stock market would help to cover up his raid. Yet the effects are now all too clear, with returns sluggish.

The government is not entirely to blame, either, for the collapse in income suffered by recently retired pensioners: thanks to falling annuity rates a £100,000 pension pot will currently buy a 65-year-old man an annual income of under £5,000, compared with about £10,000 in 1990. Low annuity rates go hand in hand with low interest rates, which in other respects are a good thing.