The Government appears to have come in for a lot of criticism for “guaranteeing” the pensions of the bankers at Northern Rock and Bradford & Bingley, (The Indepedent – “Pension guarantees for bankers savaged”) but I can’t see that it had a lot of choice.
In case anyone missed the banking crisis, these particular banks were nationalised last year. That makes the Government, in effect, their sponsoring employer. Thanks to changes in the legislation, it has, quite rightly, become virtually impossible for a solvent employer to default on its final salary pension liabilities. So unless the Government becomes financially bankrupt (as opposed to morally so) then the pensions are protected. This is why public sector pension arrangements are seen as “gold plated”.
The article also notes that the pension liabilities are likely to be left behind with the “bad bank” if the suggested, hived-off “good bank” is sold on at some point. Again the Government has little choice – no private sector Company is going to have an appetite for underfunded final salary pension liabilities. Many recent potential acquisitions have foundered in the private sector as a result of pension scheme liabilities.
This last point is perhaps a chink of light for those of us concerned about the emergence of a two tier pension system in the UK. Perhaps the Government has finally recognised that it needs to adopt a private sector approach to sustainable pensions for the future, and we can at least begin to have a debate about the reform of Public Sector pensions – see our earlier blog on this point (“Mr Micawber and the application of Endogenous Growth Theory”).
Unfortunately, with so many votes tied up with public sector workers, I fear that the Government, and probably the Opposition too, lack the necessary testicular fortitude to start an honest dialogue on this subject in advance of the election.
To quote John Maynard Keynes – “the difficulty lies not so much in developing new ideas as in escaping from old ones”.