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Friday, 21 November 2014

    Did Margaret Thatcher kill defined benefit pensions?

    Alan Pickering says Iron Lady’s championing of the individual led to rise of defined contribution

    Margaret Thatcher’s death this week sparked unprecedented media coverage and intense scrutiny of her eleven years in Number 10.

    Five days of comment and analysis has made clear the Iron Lady’s enduring legacy is one of division – left against right, individualism against collectivism.

    Alan Pickering, chairman of BESTrustees, cut his teeth in the trade union movement of the 1970s. He is unequivocal about Thatcher’s impact on British society and pensions in particular.

    “Whilst Mrs. Thatcher was a very impressive individual I fundamentally disagreed with her libertarian philosophy. She was anti-big government, anti-big business, anti-collective institutions, whether those collective institutions were employer organisations, trade unions or pensions schemes.

    “I think when it comes to many aspects of society, and pension schemes in particular, collective is better than individualism.

    That libertarian drive for individuality has done a great deal of damage to the fabric of British society in general and workplace pension provision in particular

    “It’s much easier to plan a pension at the level of a company or the industry than it is for each individual to be turned into a do-it-yourself pension consultant and that libertarian drive for individuality has done a great deal of damage to the fabric of British society in general and workplace pension provision in particular.”

    Thatcher’s government launched personal pensions in 1988 and scrapped compulsory membership of occupational pension schemes.

    The question of what people get to live on in retirement is increasingly dependent on the decisions why they take for themselves

    Tom McPhail, head of pension research at Hargreaves Lansdown, said “pension provision may be focused through the workforce but with the end of final salary pensions and the move to money purchase arrangements, the question of what people get to live on in retirement is increasingly dependent on the decisions why they take for themselves”.

    Readers' comments (1)

    • I'll try to keep this brief.

      Considering some of the later changes , I doubt that you can single-handedly blame Thatcher for the decline in Defined Benefit Pension Schemes. Although, the instigator of a private pension system (with additional rebates to encourage take up) to parallel occupational pensions, she was not the reason for the terminal decline in DB.

      I would suggest the following would all, and more, have had more impact on the decline of DB pensions:

      *Maxwell and the subsequent fallout
      *With hindsight, legislation to regularise benefits at unsustainable levels e.g. LPI
      *Accounting Rules starting the 90s (e.g. FRS17).
      *Taxation on Dividends in the late 90s.
      *Poor investment returns
      * Tightening of actuarial assumptions
      * In the future potential a version of BASEL

      Collectivism is possible with DC occupational schemes indeed to get best outcomes for pensioners leveraging group investment opportunities would create better outcomes. I would agree that to a certain extent libertarianism is hurting DC occupational schemes.

      In today's world, it is true that most pensioners will not enjoy the dream of a yacht or a walk down a tropical beach like the glossy pictures of smiling people in brochures used to suggest; BUT there is an onus on pension specialists to come up with alternatives in the accumulation and decumulation phases of DC, especially within the retirement area, where for example, in the occupational space, an annuity product that in essence has not changed for 100 years.

      Considering some of the accusations that could be levelled against Margaret Thatcher, I could think of worse.

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