The end of innocence

Fifty years before the Hutton Enquiry into Dr David Kelly's death, after-dinner speakers told of The World's Three Great Lies. They were: "I will love you in the morning as much as I love you tonight", "military intelligence" and "I am from the government and I'm here to help you".

Lord Hutton's exposure of the deceit that appears to be rife in the government and the media shows just how far these two entities are willing to go to dupe us. We can no longer trust anything we read about or hear from politicians or their advisers, nor can we trust a media that just as cynically misinterprets, embellishes and exploits the spin that is fed to them.

Even this responsible magazine isn't entirely squeaky clean. The leader and feature and on pension schemes in the 1 August issue (pages 3 and 18) unquestioningly repeat the government's anti-employer spin about final salary pension schemes. No government or politician wants to be the one to admit that our state and private pensions are fast approaching meltdown and that everybody's pension will fall short of expectations.

It is much easier for the government and its spinners to find a scapegoat to divert attention and so delay the whole issue until after the next election. Particularly a standard media scapegoat like those responsible employers who voluntarily started their final salary pension arrangements only to be mis-sold company schemes by the insurance industry, but are too discrete to complain.

These new regulations leave us with no final salary schemes and no employers.

Cunning plan, Mr Smith

There are several real reasons for the collapse of the final salary pension scheme:

Failure by the insurance industry to modernise its products to suit changing global financial conditions.

Inept, knee-jerk over-regulation by the government and taxing of scheme investments, which together have retrospectively more than doubled employers' costs.

The very poor value for money provided by insurance-based pensions. I've just been quoted a return of 3.41% per annum on my pension fund for a 3% inflation-linked pension with two-thirds widow's benefit. Therefore, I've put my tax-free lump sum in a property-based investment. The annual return starts at 10% and my wife and future generations keep the capital plus 100% of the benefits. Which option would you choose?

To cap it all, pensions minister Andrew Smith, under pressure from the unions, introduced regulations on 11 June to prevent employers from winding up ailing final salary schemes. At a stroke those rules added £300bn (according to business adviser BDO Stoy Hayward) to the combined winding up deficit of UK final salary scheme employers, making most of them (if these crackpot rules are confirmed) technically insolvent. So that leaves us with no final salary schemes and no employers. Cunning plan, Mr Smith, now who do we blame for this?

Neither government nor the pensions or insurance industries can be trusted any longer to manage our retirement savings and pensions. We need an entirely new pensions regime that omits insurance companies, government and employers.

It must be insurance-free – in other words, no annuities, no reference to age or length of service and no trustees. We need simple retirement savings plans that are as easy to purchase and track as an ISA or building society savings bond. The only way to achieve such a drastic change is to take the whole pensions debate out of the political arena. I suggested to Andrew Smith in January that he set up a Rethinking Pensions group, along similar lines to Sir John Egan's Rethinking Construction. Such a group could write the specification of the ideal state and private pension and then the financial services industry, partnering with the Treasury, could be invited to implement it.