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Brown 'has raided £100 billion from pension funds'
Last updated at 23:07pm on 15.10.06
Gordon Brown axed the tax relief of pension funds in 1997
Gordon Brown's ruthless raid on pension schemes has cost the country's savers at least £100 billion, a shocking report claimed yesterday.
For the first time, the devastating impact of the Chancellor's controversial 'tax grab' in 1997 has been revealed.
In a cruel blow, he scrapped the tax relief on dividends paid into pension funds just a few weeks after Labour came to power.
Shadow Home Secretary David Davis has described Mr Brown's raid on pension as one of the 'great scandals of the last decade.'
The report, from Terry Arthur, a fellow of the Institute of Actuaries, warns the decision has cost Britain's pension savers at least £100 billion.
This huge figure is equal to the entire economic output of Ireland, or 50 years of Tesco's annual profits at £2 billion a year.
For every one of Britain's 20 million people currently saving into a pension scheme, it means they will retire on less money.
To make matters worse, Mr Arthur warns his calculation is on the cautious side. Even £150 billion may be a 'conservative estimate', he says. A former pensions adviser to Number 10 said yesterday that the abolition of the tax relief had dealt a body blow to many pension schemes.
Dr Ros Altmann, said: 'Gordon Brown saw pension funds as an easy target - so he raided them. 'He either doesn't understand private pensions or he doesn't care about them, which is hardly prudent.'
Before 1997, a pension fund could, for example, be paid £80 in dividends and get £20 in cash back from the Treasury in tax relief.
On Budget Day, 3 July 1997, Mr Brown axed the tax relief, a move which slashed the income of Britain's 20 million pension savers.
The change took effect immediately which, at the time, most people ignored as a tedious technicality which was too difficult to understand. Until recently, it had been thought that the tax grab had cost about £6 billion a year, but Mr Arthur fears the figure is much higher.
Even at this level, it would cost every worker who pays into a pension about £300 a year, or £6 a week, according to accountants Grant Thornton. If the £100 billion figure is accurate, this is equal to £5,000 for every person who is currently saving into a pension scheme in this country. Shadow Chancellor George Osborne said: 'His pension raid was one of his first and worst acts as Chancellor.
'Pensioners will be paying a heavy price for many, many years to come.'
The sudden cut in pension fund's income has played a key role in the closure of final salary pension schemes, and detrimental changes to other ones.
By 2012, it is estimated that the majority of Britain's big businesses will axe these gold-plated pensions for existing workers, according to the pension consultants Lane Clark & Peacock. The removal of the tax relief starved pension funds of a key source of money at a time when pensions are becoming much more expensive for firms.
Mr Arthur said: 'What happened in 1997 represented an enormous and ongoing raid on the assets of UK company pension schemes.
'My research shows it would be very hard to justify an impact of less than £100 billion - and even £150 billion may still be a conservative estimate.'
The Treasury has fought requests under the Freedom of Information Act for the amount that the Chancellor expected to get from the raid to be revealed.
A spokesman rejected Mr Arthur's report: 'This methodology totally fails to recognise that, by establishing a stable macro-economic framework and cutting corporation tax alongside reforms to remove the distortionary impact of dividend tax credit, the Government created better conditions for investment and growth and hence greater investment opportunities for pension funds.'
Reader views (2)
Gordon Brown has proved himself to be one of the most incompetent and naive Chancellors ever. His raid on the Pension Funds was typical of a new boy at the helm and made one of the best funded pension schemes in Europe to one of the worst.
When Eddy George and Ken Clarke were running the show things were so much more professional - Brown's action of downgrading the Bank of England's role with the setting up of the FSA has proven to be yet another disaster. Brown was handed the improving economy on a plate and he's been a major player in wrecking it. He certainly abolished boom and bust in his naivety now we're left with bust and pensions to match.
- Alan Fisher, Ringwood. UK
In real terms the "loss" to the Pensions Industry is probably a great deal more than £100 Billion, because of the "discounting" that has to be taken into account. Far worse, however, was the replacement of the 1994 Pensions Act by the 2004 Pension Act which, among other things, radically changed the manner in which Scheme assets are now valued. I have personal experience of a scheme that is 100% funded under MFR (Minimum Funding Requirements) as laid down by the 1994 Act now being over £5 million in deficit simply by reason of the new valuation principles. Gordon Brown has completely wrecked the Pensions Industry as can be seen by the number of schemes that have closed and the many Companys that have been forced to wind up because they cannot cover pension fund shortfalls; indeed the situation is now so serious that any reversal of legislation will have little impact.
- Tony Lincoln, Westerham, UK
