Pensioners mugged by men in suits
When Robert Maxwell was found to have fiddled the Mirror Group
pension fund, he was posthumously branded a robber baron. Yet Maxwell seems
to have been something of a model for many other employers who are interfering
with our pension funds and getting away with it. Andrew Calcutt reports
'Your pension is safe with me', intoned the voice of Robert Maxwell in a
Mirror Group in-house video in 1988. A month after his mysterious death
on 5 November 1991, it emerged that £480m had been siphoned out of
the pension funds of various companies in the Maxwell empire. More than
18 months later, 20 000 Maxwell pensioners are still in doubt as to whether
their payments will continue. Employees and former employees under retirement
age are equally unsure of their position.
'Pensions were supposed to be gilt-edged security', says Ivy Needham, a
67-year old partially blind widow and former canteen manager from Leeds.
'Now it is possible they will not be paid. I am receiving my pension but
with great uncertainty, living in fear of a letter saying you'll get it
this month but not the next.' She says that the stress of 'living from day
to day, not knowing if you can afford a holiday or the mortgage payments'
has led to serious, even fatal illness among Maxwell pensioners.
Meanwhile twin sisters Sylvia and Cynthia Hinton have been living on unemployment
benefit. They worked at the Maxwell-owned Nuffield Press in Oxford
for 38 years before being made redundant in February 1992. Their combined
pensions contributions total £60 000 but they do not know if they will
receive their pensions when they reach 60 in six years' time.
The Maxwell pension scandal prompted a flurry of parliamentary activity.
A government-backed whip-round in the City raised £6m. But more than
£400m is still missing, and Maxwell pensioners continue to face an
There had been previous odd cases of pension fund misuse (Aveling Barford
in 1988, the Charmley Davies Group in 1991). But it was the Maxwell scandal
that provoked widespread concern. News of Maxwell's theft coincided with
a worsening recession. In an already apprehensive atmosphere created by
the economic slump, millions of workers and pensioners became fearful that
unscrupulous employers might 'do a Maxwell' and abuse their pension funds
to make up for a shortfall in company profits.
Their fears are more than justified. Maverick tycoons are not the only
ones hijacking pension funds. Among employers, taking advantage of members'
contributions is regarded as sound business practice. As Ivy Needham explained,
while they can get away with it, 'they'll all be dabbling'.
Occupational pension schemes have mushroomed since the seventies. British
pension fund assets now total £400 billion. More than 11 million employees
are paying into schemes covered by the National Association of Pension Funds.
Among employees aged 25 to 44, only 20 per cent do not belong to a contributory
pension scheme. More than five million people are currently receiving
some income from an occupational pension.
A typical pension amounts to 1/60th of the employee's final salary,
multiplied by the number of years worked. A standard contributions arrangement
would mean the employee (member) paying five per cent of wages into
the pension fund, with the employer contributing twice as much. Pension
funds are usually managed by a board of trustees, independent in theory,
but almost always company-dominated.
Largely as a result of sky-high investment returns in the eighties, most
funds have tended to be in surplus; the money in the fund amounts to more
than is required to meet its current liabilities. Fund members argue that
pensions are deferred wages and that surplus pension funds should be used
for the sole benefit of members. Corporate finance directors,
however, have come to view pension funds as 'profit centres' at the
disposal of the company.
The practice of dipping into funds is as old as occupational pensions. But
in recent years it has been exacerbated by the slump. There are examples
to be found in every sector of business.
£1m for them
Irregularities in the management of the Lewis' Group pension scheme have
eroded a £12m surplus to the point where payment of pensions is now
in doubt. When Qa Business Services collapsed in September 1991, the pension
fund was found to be insufficient to cover liabilities. Three executives
had taken early retirement payments totalling £1m; meanwhile 130 employees
lost two-thirds of their pension entitlement.
Belling, the cooker manufacturers, went into liquidation in March 1992.
A year earlier, £2.1m was paid from the fund to the company to secure
a refinancing scheme which was never implemented. Belling also sold
one of its own subsidiaries to the pension fund for £5.5m - a back-door
device for raising cash known as 'self-investment'. The independent trustee
appointed by the receiver is charging £250 an hour to sort out the
Self-investment at a shoe firm, Burlington, stripped the fund of £7.7m
before the company went into receivership in 1992. CTU, a London-based engineering
services company, went under in 1991 after diverting £250 000 of pension
contributions into the business. Like the Maxwell pensioners, 60 former
employees face an uncertain future.
In an article entitled 'Keep a sharp eye on your pension', Sunday Times
financial journalist Barbara Ellis concludes that 'there is increasing
evidence of pension money missing from companies that have collapsed in
the wake of the recession. A disturbing pattern is emerging of pension payments
being - at best - delayed as businesses tried desperately to stay alive'.
Bankrupting the pension fund along with the company is frowned upon in the
City. But as long as the firm stays afloat, and pension entitlements
continue to be met, the law says the fund is there for management to play
with. Anything goes, including complete disregard of the original terms
of agreement between employees and their employer.
When pension funds are in surplus, companies regularly award themselves
a refund. To them, the only disadvantage is that tax is payable at 40 per
In April, Courtaulds announced it was to recover £83m surplus from
the pension fund. Lucas Industries pensioners issued a writ for the return
of £150m transferred from their fund to the company in November 1991.
Self-investment helped to create a £30m deficit in the Courage
pension fund. Portals Group took £7.5m from its fund, despite the fact
that the trust deed said that surplus monies should only be used to increase
reserves, reduce contributions, or increase benefits. The proposal
for a refund was notified to the trustees only after the publication
of the accounts. Contributors to the Express Newspapers fund were concerned
about a £25m fall in surplus. When they protested in 1990 they learned
they had been relegated from member to beneficiary status in 1988.
While employees carry on paying in, employers can take a contributions holiday
whenever the fund is in surplus. British Telecom enjoyed a contributions
holiday from 1988 to March 1993. The company recently began contributing
again, but only after it had spent £800m of a £913m surplus on
last year's mass redundancy package, Release '92. London Regional Transport
has been criticised by a high court judge for cutting its contributions
Combined Actuarial Performance Surveys indicated that only 30 per cent of
pension funds had a positive cash flow in 1991. The Guardian
reported that 'employers have taken more than £1 billion out of UK
pension funds in the last seven years'. In addition, the 1992 National Association
of Pension Funds survey showed that more than half of British employers
are using fund surpluses to reduce or eliminate their contributions. 'Financial
directors have become addicted to pension fund holidays', says Bryn Davies,
actuary and author of the Institute of Public Policy Research report on
fund ownership and control.
Other scams include using privatisation or takeover as an opportunity to
scrap existing pension schemes and set up an inferior version (Travellers'
Fare, City Link, Cleveland Guest Engineering, TI-Dowty Engineering, various
privatised bus companies and electricity producers). Some companies do not
need an excuse. National Westminster Bank recently closed their existing
pension scheme to new members. There is a replacement, but new employees
must wait five years to join it. Standard Chartered announced that
with effect from 1 June 1992, employees joining the bank's permanent staff
will not be allowed to become members of the pension fund until they reach
the age of 25.
Some employers (APV Food Engineering, Appledore Shipyard, Portals Group)
have pre-empted the government's deliberations on raising the retirement
age for women. Female employees who expected to retire aged 60 on a full
company pension must now work another five years or face a reduction
in their pension entitlement of up to 25 per cent.
In the wake of the recession, many smaller companies are ripping up traditional
final salary schemes, in which the employer is expected to cover any
deficit, and replacing them with money purchase schemes, in which the
employer's contribution is fixed and the employees' contributions must
increase to make up a shortfall. Money purchase pensions are not inflation-proof
and the members' final entitlement depends on the success or failure
of the fund's investment managers.
The furore over Maxwell led to the setting up of the Pension Law Review
Committee, headed by Professor Roy Goode and due to report on 30 September
1993. The National Association of Pension Funds submitted evidence to the
inquiry. It called for a compensation scheme but believes that the existing
trustee system is basically sound, although 'it does rely on all the trustees
being "good eggs"'. The union-backed Campaign for Pension Fund
Democracy has argued for a majority of trustees to be elected from the workforce,
but union officials are resigned to 'not getting anything like what
Almost everyone is appealing to the Tory government to prevent pension fund
rip-offs. But cabinet ministers have an appetite for pension contributions
which makes Maxwell look anorexic.
After a contributions holiday, British Coal owes the white collar staff
superannuation scheme £481m. But the Treasury and the Department of
Trade and Industry have instructed British Coal to make up that difference
by diverting £471m out of the pension fund surplus. The £471m
refund is roughly equivalent to the £500m temporary pit subsidy recommended
by the house of commons trade and industry select committee.
What's the difference?
Trustees from the National Union of Mineworkers are taking legal action
to demand repayment of £800m to the mineworkers' pension fund (the
cost of another BC contributions holiday). Union president Arthur Scargill
said in The Miner: 'there is little difference in principle between
this method of withholding money, or creaming off surpluses, and the plundering
in which Robert Maxwell was involved.'
Getting its hands on the pension funds is one reason why the government
wants to privatise the coal industry. In his column in Pensions World,
Anthony Hilton, managing editor of the London Evening Standard, wrote:
'I expect the government to take over the fund and use the £13 billion
assets to help meet the budget deficit.'
In March, transport secretary John MacGregor withdrew plans to take funds
from the £8 billion British Rail pension fund and use them to reduce
the government's public sector borrowing requirement by £4 billion.
However, similar plans are likely to be implemented when the railways are
privatised. The Post Office pension fund may also be plundered.
'What's the difference between Robert Maxwell and the government?', asks
a retired miner from Annesley pit in the Nottinghamshire coalfield:
'The difference is that the government won't be getting a visit from the
Additional reporting by Ian Purdy, Andrew Morrison and Hilary Salt
Reproduced from Living Marxism issue 57, July 1993