James Purnell, secretary of state for work and pensions, faced down questions at the National Association of Pension Funds’ (NAPF) conference on why the government had raised a 100% guarantee to bank savings from a £35,000 ceiling to £50,000, but would only guarantee 90% of pensions for schemes covered by the FAS.
Before entering the auditorium to give his speech, he was accosted by members of the United Engineering Forgings (UEF) pension scheme, who had been picketing the conference.
Purnell was also questioned in the auditorium by a NAPF member, but replied to the audience that there were moral hazard implications in offering such a guarantee.
Pensions activist Ros Altmann sympathised with the UEF’s plight. Commenting on the government’s decision to guarantee 100% of deposits in failed Icelandic bank IceSave, she said: “This measure seems to be a dangerous and irresponsible use of taxpayers’ money, which sets up more problems for pensions in the long term.
“Pensions or other long-term savings are only protected around 90% up to a cap, but in a bank, your money is now 100% safe. Who will want to put money into pensions now?”
She continued: “The double standards are also quite astonishing. For over five years, I tried to persuade the government that it should compensate workers whose final salary pensions – which the government said were 100% protected by law – had disappeared. The consistent refusal was based on the argument that taxpayers’ money could not be used to bail out these schemes. Suddenly, taxpayers can underwrite bank accounts that were not supposed to be safe at all.”
Andrew Cox, partner at Lane Clark & Peacock, said he would not be surprised if the government launched new regulatory initiatives affecting all financial institutions, following its intervention into the banking sector last week.
“Both Gordon Brown and Adair Turner have alluded to more intrusive regulation in the UK in future,” he added.
Charlie Kirby & David Rowley
