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Pension Victims Want Bailout Too

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From the Guardian

Victims of previous financial collapses called on the government today to extend the bail-out announced last night to Northern Rock depositors.

Campaigners said the government should offer to support pension savers who lost millions of pounds when their companies went bust, and that investors in Equitable Life should also be given compensation after they lost millions of pounds when the mutual insurer crashed in 2000.

The government said it would guarantee deposits at Northern Rock and any other bank that found itself caught out by the current credit crunch in financial markets. The guarantee is estimated to be worth around £28bn to the banks, which until now have relied on an industry scheme offering to protect savers' deposits to a maximum of £31,700.

Ros Altmann, an independent pensions consultant, said victims of crashed pension schemes deserved the same level of protection as Northern Rock savers.

She said savers into final salary pension schemes that crashed were told their money was safe in government literature and by their employers. Despite the reassurances they found they lost almost all their savings when their employers went bust. A report by the parliamentary ombudsman ruled that the government was at fault and should offer full compensation.

The government put a lifeboat scheme in place in 2004 to protect some employees, covering the period 1997 to April 2005. However, it has come under fire from unions and opposition parties because it only guarantees to protect 80% of savings. Ministers also refused to index link pensioners' retirement income, further cutting the value of their retirement scheme.

A Pension Protection Fund came into operation after April 2005 that offers 90% protection.

She said: "The unlimited bail out of Northern Rock savers is, of course, welcome news to those individuals affected, but it also surely shows that this government's treatment of the victims who lost their pensions after believing that their money was completely safe and protected by law is unacceptable.

"The Treasury has not yet put a penny into the Financial Assistance Scheme but the cost of paying the victims the same as the Pension Protection Fund would be just £10m a year or so.

Campaigners for victims of the Equitable Life crash in 1998 also argue the government was at fault in failing to spot that the mutual insurer was effectively insolvent. They received support earlier this year from the European parliament, which said there had been a failure of regulation.

Richard Murphy of independent consultancy Tax Research said the government guarantee for bank deposits was worth the equivalent of 10% extra on bank corporation tax payments.

He said the tax would fairly compensate taxpayers who were at risk if further banks got into trouble.

"In effect the Chancellor has now given all bank customers a guarantee that just about whatever their bank does their money is safe. Much of the risk has gone out of banking as a result and has been assumed by the state," he said.

"Risk transfer always has a price. I suggest that in this case a charge can be created for the risk the state is taking on. I'd suggest that it is an extra 10% corporation tax to be paid by any bank offering deposit taking services in the UK."

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