Labour accused of raiding its pension fund

The Labour Party has been accused of raiding the surplus in its pension scheme as it is hit by a fall in stock values that has wiped £6m off the fund since its last valuation.

The scale of the losses, aggravated by the fact that the fund is exceptionally dependent on the performance of the stock market, has provoked fears that it could be in deficit.

Problems with the pension fund could affect the retirement income of a number of well-known former employees, including Peter Mandelson and Denis Healey. But the people most at risk will be long-serving party employees, who were often on low wages.

The fund has 83 per cent of its assets in equities, a proportion which experts – cited in the current issue of Professional Pensions – have described as "dangerously high", particularly given the current state of the market.

One disgruntled former party employee has written to the Labour Party treasurer, Jimmy Elsby, complaining about £75,000 allegedly taken from the fund to cover running costs.

The fund had a £4.48m surplus when it was last valued in December 2001, but Labour's director of finance, Stephen Uttley, confirmed that the value of its investments fell by 17.5 per cent in 2002.

However, unlike other employers, the Labour Party is not planning to end its final-salary scheme.

Mr Uttley said: "On 31 December 2001 we did have a cushion of £4.4m and assets of £30m. If there is a deficit we will take actuarial advice and increase our contributions if we have to."

Labour MP Lynne Jones said she would not be surprised if the scheme was in deficit. "One would have expected them to have diversified their risks as much as possible. Now difficult decisions may have to be made."

Although the Labour Party is blaming the fall in share values for its problems, the Tories will inevitably point the finger at Gordon Brown, who ended the valuable tax relief on dividends which pension funds enjoyed under the Tories.

Michael Howard, the Shadow Chancellor, said yesterday: "It's no wonder Labour's pension fund has dropped so much. This has happened to many pension funds and one of the key reasons is the dramatic and damaging effect of Gordon Brown's £5bn-a-year tax on pensions."

The crisis in the pensions industry is threatening to become a major political problem for the Government, which is under increasing pressure from trade unions whose members are facing a dramatic drop in income during their retirement.

The unions want firms to keep up the final-salary schemes under which the value is calculated as a proportion of what the employee was earning at the end of their employment. But the Association of Consulting Actuaries has calculated that 63 per cent of final-salary schemes have been closed to new entrants.

Overall, it has been estimated that pension schemes are facing a £300bn shortfall in their final-salary schemes. Some funds have reacted by asking employees to increase their contributions, others by capping the value of future pensions.

Union leaders were outraged last month when MPs filled a gap in their own pension fund not by imposing extra payments on themselves or by reducing their pension entitlements, but by instructing the Treasury to contribute an extra £7m a year.