Screw turns on pensions: Personal Finance

PENSIONS have always been a bit on the boring side. But in compensation they were supposed to be good for you - nourishing and sustaining like wholemeal bread and sunflower margarine.

Recent years have shown that the absolute security of company schemes is an illusion, because companies go bust and are sometimes run by Maxwell-style villains who plunder the funds.

And the sunlit uplands of personal pensions, with all their Thatcherite values of choice and freedom, have fared no better. They offered such scope for sales staff to persuade people to take risks with their standard of living in old age.

You might think that it took a scandal of Maxwellian proportions to persuade this Government that it had to intervene in pensions, although it would rather let private enterprise get on with it. But a greater impetus came from the escalating cost of pensions on the state - especially Serps, the State Earnings- Related Pension Scheme.

Added to that, European law has been pushing for equal treatment of men and women, which has presented problems for a pensions system tied up with state provision that is unequal.

So what did the Government serve up? A dish that delighted nobody but should provide enough goodness to stem the clamour for reform.

The trade unions wanted stricter controls. They were disappointed that the new pensions regulator will be passive, waiting for whistle- blowers to come to him or her with their suspicions and evidence.

They also wanted the right to appoint a majority of the trustees of company pension schemes. One-third was proposed by the Government, though a committee chaired by Professor Roy Goode had said two-thirds should come from employees.

Peter Lilley, Secretary of State for Social Security, pointed out that the Maxwell schemes had 50 per cent worker-trustees, and that did not help much.

On the other side, those involved in pensions believe that some of the provisions will be crippling and will deter companies from running pension schemes at all.

They are worried about the new solvency tests, which may mean a more conservative investment strategy.

Another big change is the way that pensions entitlement will be indexed. Instead of the portion of pension rights built up to match Serps benefits forgone being uprated, to take account of inflation, the whole pension will be inflation-proofed, but only up to a limit of 5 per cent.

If inflation roars away, full indexing of part of the pension would be more valuable than partial indexing of all of it.

Age-related rebates are to be introduced to persuade people to stay away from Serps, and the rules on converting the pension savings into income are to be eased, so people can leave the money rolling up if interest rates are low and it seems better to wait.

But splitting pensions on divorce is going to have to wait. The Government has cooked up a huge research project to discover how being divorced from a spouse's pension affects the living standards of women.

It is difficult to envisage any very surprising answers there.

The reforms are not going to make another pensions scandal impossible, but they should help to encourage the suspicious to blow the whistle. Much depends on the calibre of the pensions regulator.

THE Metropolitan Police have decided that crime prevention stretches far beyond better window locks and door chains. They have issued two booklets on fraud - one for individuals and another for businesses.

The leaflet for the public warns that fraudsters are frequently charming, believable and very persuasive.

It ends with the useful adage: 'If it seems too good to be true, it probably is.'