Goode's fatal flaw

Everyone will say that the Goode report is a worthy document, and its recommendations should be put into practice forthwith. And so it is. But, while there is nothing wrong with the report itself, the fundamental assumption on which it is based - that pensions should be associated with the employer rather than the employee - is fatally flawed.

The first thing to understand is that the Goode report is the late Robert Maxwell's bequest to pension regulation. The legal and regulatory vacuum within which company pension schemes have operated was partially filled during the 1970s and 1980s with the founding of the Occupational Pensions Board in 1973, progressive changes in the rules on disclosure on company schemes and the introduction of personal pensions during the 1980s, and the inclusion of pensions under the Financial Services Act in 1986. But these were all patches and, as Maxwell demonstrated, inadequate patches at that.

The proposals of the Goode Committee, assuming they are adopted - not a safe assumption given past performance of governments of both main parties on this issue - are really only a more thorough and developed version of the ideas suggested by the Occupational Pensions Board in 1975 (and in subsequent reports) and the Wilson Committee in 1980. They would provide a competent and effective framework for running company pension schemes. The trouble is that companies should not be running pensions at all. Consider the following 10 propositions that anyone starting out on a career ought to consider.

One: it is impossible to make any sensible assumptions about the level of state provision of pensions except that, given the age structure of the population in all industrial countries, it is unlikely to be sufficient to ensure a comfortable retirement.

Two: during a working life, one is likely to change jobs at least half a dozen times.

Three: at least one of those job changes will involve a period of self-employment.

Four: the balance of probability is that one will be unemployed for at least some months during a 40-year working life.

Five: there is an overwhelming probability that at the time of retirement at least one of one's previous employers will have gone out of business.

Six: it is impossible to know at what age one will want to retire, or indeed if one will retire at all.

Seven: there is reasonable possibility that some part of one's working life will be spent abroad.

Eight: one should be aware that social and political conditions in Britain (or indeed in any country) may change in such a way that one would want to emigrate permanently.

Nine: all large companies and public sector agencies are likely to reduce their workforce at some stage in the future, so that working for one carries a large risk of being made redundant before normal retirement age.

Ten: companies that are good at making soap flakes have no skill in making pensions.

Any one of those propositions ought to convince people at the start of their careers that they have to make private and personal commitment to their own pensions. The future is so uncertain that it is absurdly risky to rely on an employer, be that employer in the public or private sector. Yet the present system herds people into accepting a pension as a by-product of a job, something 'given' by employers as a reward for working for them.

If one were being really radical one would construct pensions legislation that required individuals to make their own provision, allowing companies to top up such provision if they so chose but not to choose the way in which they did it.

For example, one would either ban final salary pension schemes, for these distort the labour market for anyone over the age of 50 or at the very least allow people to convert on favourable terms into money-purchase schemes at any time. One would require companies that did run schemes to pay the same amount into a private pension of the choice of the employee, so that people were not forced to accept the pension product of the employer.

One would allow people to draw down a pension fund at a rate of their own choosing, or indeed to pass on any unused part of the pension fund to their heirs.

One would encourage people to have pension plans with several providers rather than one - one might be the employer, but this would be buttressed by many others. One would try to encourage people to take an interest in the investments in which their pension plan was placed so that the ownership of large corporations was more directly held by individuals.

Above all, one would try to encourage people to save. Quite aside from savings giving people a cushion in increasingly uncertain times, there is an economic case for trying to boost savings. Countries that save a lot almost always become richer more quickly than those that do not. Pension fund tax breaks are designed to do this. But Maxwell is not a great advertisement for this form of saving.

Arguably all this goes beyond the remit of the Goode Committee. But in 10 or 20 years' time the points made above will seem commonplace. Everyone will accept that individuals will make the main provision for their retirement, subject of course to the state's safety net for those who have failed for whatever reason to do so.

Everyone will accept that employment will have become a much more flexible concept, with a much higher proportion of people working part-time for periods of their life, and with many people not retiring as such but carrying on with some kind of post-retirement part-time occupation. The whole idea of a final salary, let alone a pension based on it, will have become archaic, for people will not suddenly retire and certainly not at their peak earnings.

So welcome the Goode Committee's work - but recognise that it is designed to cope with the Maxwells of the world, not the future pattern of work.