By the time William Milne retired in 2005 from the Strathclyde fire brigade after 30 years, aged 50, his pension promise from his employer was worth over £444,000. We know this because he elected to take £111,038 as a tax-free lump sum, and 25 per cent was the maximum allowed.

We now know that his proper entitlement was about £25,000 more. This month the pensions ombudsman ruled that the Government Actuary’s Department was guilty of “maladministration” in his and thousands of similar cases. The 41-page determination is largely incomprehensible to ordinary mortals, and we must hope that the GAD is better at following it than in getting Mr Milne’s sums right in the first place.

The treasury estimates that the GAD’s bungling over rights for policemen and firefighters will cost us £860m. This is painful enough, but it’s not even a rounding error in the great public sector pensions liability. Firemen contribute between 11 per cent and 13 per cent of salary, which in Mr Milne’s case rose to £40,000. However, even over 30 years his contributions amount to a small fraction of half a million pounds. The taxpayer is finding most of the money.

In the private sector, pensions are being reformed rapidly, as the true cost of promises threatened the solvency of viable businesses. Indeed, after the latest changes, it’s possible that pensions, the ultimate long-term savings, may not have much of a useful life left. In the public sector, most attempts at similar reforms have been thwarted, and cases like this one highlight how much is at stake.

Fighting fires requires occasional great bravery, but statistically it’s not a particularly hazardous occupation, and nowadays retiring at 50 looks an absurd anachronism. Good luck to Mr Milne for winning the great pensions lottery – now with a cherry on top – but let’s not pretend it’s anything else.

Drax it! The government’s ratted again

Neil Woodford is in a bit of a strop. His fund is a big shareholder in Drax, the power station that’s going green (about the gills). Today’s Green Drax uses wood chips grown and processed in north America, shipped across the Atlantic, and stored in high-tech domes lest they explode before use.

This process costs three times as much as burning the coal from beneath its cooling towers, and requires a massive bung from the taxpayer to break even. The renewables subsidy regime is a legacy of Ed Davey, an impressively useless Energy Secretary in the last administration (another legacy is the wafer-thin margin of generating capacity this winter) and now his Tory successor is putting the brakes on it.

The transformation of Drax, as Mr Woodford points out, was a high-risk project, and he reckons the Budget has pulled the rug from underneath its finances. Drax shares had already halved, and have plunged by almost another third since last week. The move to scrap the Climate Change Levy, he argues, undermines the confidence of investors in government-backed projects.

He’s right, up to a point. The harder question is whether this project which some of us said nearly two years ago was far too expensive and the very palest shade of green, should have been allowed to grind on regardless of cost or late understanding of mistakes. Drax and Mr Woodford bet on continuing subsidy and lost.

Opening up Openreach

If you can get your home internet to work, take a look at the snappily-entitled Strategic Review of Digital Communication: Discussion document, where Ofcom muses about breaking up BT. At present, nearly all internet providers use the wires owned by Openreach, so switching provider is unlikely to improve your user experience. This shadowy body – its “contact us” page essentially says “don’t even try” – is owned by BT, supposedly at arm’s-length.

Breaking off the arm is one possibility, which would bring the business into the daylight and expose its effective monopoly. that’s unlikely to happen, but even by asking the question, Ofcom is headed in the right direction. Meanwhile, it might urge rejection of BT’s latest piece of empire-building, its proposed takeover of EE, a mobile monster built from the ill-advised merger of Orange and T-Mobile. It’s already too big.

This is my FT column from Saturday

 

Advertisements