The five biggest pension scandals

Neil Faulkner
by Lovemoney Staff Neil Faulkner on 05 November 2009  |  Comments 3 comments

We look at the huge and often tragic cost of the biggest pension scandals of the past twenty years.

On this day, 5 November, in 1991, Robert Maxwell, owner of the Mirror Group, died at sea.

The then Prime Minister, John Major, paid tribute by calling him a 'great character'. He must have regretted these words when it later came to light that, not only did the group have massive debts, but Maxwell had plundered £440m from the company's pension funds.

The vast majority of this money was either refunded by Mirror Group or paid out by the government, although those with responsibility for safeguarding employees' pension savings received little more than slapped wrists and the money was never recovered.

The Maxwell pension scandal:

  • Affected 30,000 people
  • To the amount of about £400m

But this is far from the only pension scandal...

Broken government promise

As I wrote in A pension scandal worse than Maxwell, the Government's promise to workers that their pensions were 100% safe was not the case for 140,000 people whose employers, and pension schemes, collapsed between 1997 to 2005. Eventually, after immense pressure, they did agree to keep 90% of their promise. Better than nothing, but not much comfort for those who suffered or died beforehand.

The broken promise scandal:

  • Affected 140,000 people
  • To the amount of about £900 million!

Equitable Life

Insurer and pension provider Equitable Life had a load of holes in its pension schemes and the regulator made a whole load of failures in its duties to spot them and, when it did spot them, it did a whole load of nothing. The government then did nothing too, and it continues to do nothing to help (outside of a few noises about helping the worst off some time in the distant future, if they're still alive of course) despite Parliament's own Ombudsman slamming the regulatory failures.

The Equitable Life scandal:

  • Affected around one million people
  • To the amount of £1bn+ 

Personal pensions

Occupational pension schemes (e.g. final-salary schemes) had become increasingly unaffordable. There is no doubt that something had to be done about them (and still has to be done about many of the few that remain). However, that 'something' turned out not to be an honest admission to workers by government and business, but instead a huge kick in the teeth by encouraging people to leave their guaranteed pensions for the risks of the stock market. For many this was a bad move and it resulted in the largest pensions mis-selling scandal to date, not to mention falsely-raised expectations and unnecessarily broken dreams.

The personal pensions scandal:

  • Affected more than two million people
  • To the amount of £10bn

Stealth tax

A mere footnote in a very long Treasury document removed a tax advantage to pensions that, 12 years later, we realise cost us collectively a staggering sum. The removal of tax credits on share dividends may not sound particularly harmful to you, but it has resulted in the greatest pension scandal of all by a factor of ten or more.

Let me put this scandal into perspective. You'll have been reading for many years about the massive pension deficits that large companies have. Well, the Government's tax raid was much, much bigger than that - and it's ongoing.

The stealth tax scandal

Affected twenty million

To the amount of £100bn-£150bn

What can we do?

We can't rely on anyone to protect us from scandals or to save us from them afterwards. We must rely on ourselves:

  • Don't count on the state pension. Make your own retirement provisions, and consider investing part of your retirement fund in alternatives to pensions, such as shares ISAs.
  • Seek a second opinion (and third and fourth...) on your retirement plans through our Q and A tool.
  • Read all the small print in your pensions documents. Understand it.
  • Keep written records and ask for everything in writing. If you're being sold a pension with advice, ask for a letter explaining why it is suitable for you. This should put 'advisers' off mis-selling to you.
  • Think you're a victim of mis-selling? Complain. If that fails, contact both the Financial Ombudsman Service and the Financial Services Authority.

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Comments (3)

  • MK22
    Love rating 169
    MK22 said

    Not only did Gordon Brown take billions from Pensions Funds with the scrapping of ACT, he's at it again (well HMRC) by restricting tax reclaims on overseas equity dividends via unauthorised unit trusts. Much as I support Labour against the other lot (both of them) we have to remember that the 10+ years of financial stability and growth were funded by Pension Funds via the scrapping of ACT. There would be no pensions crisis if they hadn't scrapped it!

    Report on 06 November 2009  |  Love thisLove  0 loves
  • Oxygenate
    Love rating 7
    Oxygenate said

    Well, @ Mk22, you and 60 million other people (I'm excluding the City barons) have been defrauded, plundered and ripped off by the most scandalous government in our history. Not just that, but by a government which included not one person who had held a job (besides posting letters by the completely forgetable Minister ) and wound us up in so much red-tape that no-one now understands the tax system, pension system or benefits system - the result not just of incompetence, not just of 'never held a job where things have to get done' but by a 'Jupiter complex' of invincibility - just look how long it took the Labour party to admit defeat - 6 months? At one time it seemed that the Queen would need to ask Mr Brown to quit. The last government ended by civil servants requesting ministers to personally sign off expenditure; had a Board of Directors behaved in such a way - running a company which they knew could not meet its obligations - they would be in the dock. Why aren't Brown, Darling and the egotistical Balls there? Perhaps with you Mr MK22?

    Report on 07 March 2011  |  Love thisLove  0 loves

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