I recall that David Willetts, the shadow works and pensions secretary, was at one time known as “Two Brains”. You have to remember that this was at a time, probably in the late Eighties, when the Tory brand was riding high. People really thought that the Conservative Party – or, indeed, political parties of any persuasion – sometimes attracted young high-flyers with first-class minds. The political brands have been devalued since then.
Anyway, Willetts was thought to be something of a young genius and a man of vision with at least double the intellectual capacity of his peers. The trouble was – and is – that his two brains don’t seem always to be in touch with each other. Their synapses appear to be incompatible and, frankly, I’m surprised they haven’t got a divorce yet.
I once heard him give an after-dinner speech in which he provided an insightful analysis of the economy and then seemed to argue that the working classes shouldn’t earn more money, because they would just waste it. In short, he’s a combination of John Maynard Keynes and Harry Enfield’s Tory Boy.
He’s been at it again this week, in a speech to a right-wing think-tank called Politeia. He made a thoughtful case for “longevity bonds” as a means of ameliorating the projected pensions crisis that is the consequence of an ageing population, low interest rates, volatile share values and (I would add) a generally rubbish financial services industry.
The radical proposal behind Willett’s longevity bonds is that the Government should issue securities that pay more as longevity rises. He is proposing that the Government should bear a larger proportion of the financial risks involved in providing annuities. The mechanism for the new long-dated gilts linked to the Government Actuary’s forecast of life expectancy is complex, but the bottom line is that a reduced risk exposure would enable companies that hold the bonds to offer annuity rates that could rise by up to ten per cent. If pensions providers don’t have to set so much money aside to cover life expectancy, then they can offer a better deal to their savers. Good idea.
But then the other Willetts brain kicks in. He tells us that the pensions crisis is as great a threat to our society as global warming or terrorism. This is the stuff of foam-flecked lips at Tory party conferences – and will certainly appeal to febrile, economic doom- mongering leader-writers at the Daily Mail, at whom Willetts may have been aiming his comments.
That would, at least, explain why he said it. Otherwise, what can he possibly mean? Perhaps he really does believe desperate pension-fund managers at FTSE companies will be driven to meet their corporate liabilities by mustard-gas attacks on pensioners enjoying breaks with Saga Holidays. Or that the short-fall in pension provision in major industries will cause catastrophic climate change and the polar ice-cap to melt and tsunamis to wipe out the populations of coastal cities, while actuaries die of skin cancer in their thousands.
I am reminded of another great Tory scare-speech of yesteryear – Willetts, like the Roman (or Enoch Powell so famously quoting Virgil), seems to see “the River Tiber foaming with much blood”. Except this time it’s the life-blood of pensioners.
No, David, what will happen is that the economy will become rather less buoyant, interest rates and taxes will rise, some companies will go bankrupt and local authorities will have a bit of a whinge. It might even feel a bit like the Seventies. Now, that’s far from a good thing and nothing to be complacent about, but it’s not a national disaster and there’s no point just trying to scare people.
I might add – and it’s a point that Willetts is gracious enough to acknowledge – that much of the blame for the present pensions crisis can be ascribed to the Tories for scrapping the link between earnings and the basic state pension some 25 years ago.
In fairness, at least Willetts’ longevity bonds proposal shows that he is trying to be part of the solution, leaving aside his silly, headline-grabbing attempts at associating himself with the movie The Day After Tomorrow. That’s more than can be said for most of the financial services industry, which seems more concerned with its own staff benefits than with those it provides for customers. Financial institutions have deflated the value of much of our industry – the size of WH Smith’s pension deficit has interrupted its takeover, and pension liabilities are proving critical to Philip Green’s plans for Marks & Spencer.
Willetts says he wants to work with the savings industry to find a solution to the pensions crisis. He’ll be lucky. Many financial services companies can’t field one brain between them.
George Pitcher is a partner at communications management consultancy Luther Pendragon