Gordon Brown defied repeated warnings from his own officials about the potentially devastating impact of his £5 billion-a-year raid on pension funds and went ahead with it regardless, The Times can reveal.

Pensions campaigners described the revelations — the result of a two year battle by The Times — as an absolute disgrace, and said that it showed the Chancellor “knowingly set about destroying” Britain’s pensions system.

Mr Brown announced the scrapping of tax relief on dividends paid into pension funds in his first Budget in July 1997, in the single biggest change to the pensions system in a generation.

Experts claim that the move has deprived the country’s savers of at least £100 billion over the past decade, during which Britain’s private and occupational pension system has struggled to stay afloat. The changes affected the 11 million people in Britain with company pensions and the 7 million with personal pensions.

Documents that were released to The Times under the Freedom of Information Act show that officials told Mr Brown:

–– The lower paid would be worse off under the new rules

–– Pensioners due to retire would lose out immediately

–– Businesses would struggle to adjust to the change

–– It would cost pension providers £4 billion a year

–– Pension benefits would be cut

–– Shares could drop by between 6 per cent and 20 per cent

–– The value of existing pension funds could fall immediately by £50 billion

–– Local authority schemes would need topping up, leading to higher public spending

–– The Department of Trade and Industry would be “gravely concerned” about having to bail out pension schemes driven into insolvency

The revelations are severely embarrassing for the Chancellor, who has largely escaped blame for the troubles being faced by the pension industry. The Treasury only released the documents to The Times after being ordered to do so by the Information Commissioner. Ros Altman, a former adviser to Tony Blair on pensions and who now campaigns on behalf of pensioners, read the documents and said: “It is outrageous. It is an absolute disgrace. They were knowingly embarking on the emasculation of the most successful pension system in the world.

“The Government came in with much hope that things would get better, and then set about destroying the retirement security of so much of the population.”

Mervyn Kohler, of Help the Aged, said: “This is staggering. There is a strong feeling among pensioners that they have been let down by this Government and this information will only reinforce that perception.”

Philip Hammond, the Shadow Secretary for Work and Pensions, said: “Gordon Brown must take responsibility for the collapse of Britain’s pensions schemes, and the halving of the saving ratio. The fact he continued with it after he was warned of the disastrous effects it would have on pension schemes shows what priority he gives to pensioners.”

At the time of the move, pension companies and groups rallied hard to dissuade Mr Brown. They said that the abolition of the tax relief dealt a “body blow” to many pension funds and would result in reduced income for millions of pensioners.

The Chancellor dismissed the claims, but it has now emerged that he was given similar advice from within Government. One of the confidential policy documents states: “We agree that abolishing pension tax credits would make a big hole in pension scheme finances.” Another stated: “Those who are about to retire (or who have just retired) could be worst affected.” He was warned that pension benefits “would be smaller and this would run counter to a policy of improving retirement income” and that “The change would therefore lead to a reduction in pension benefits for the lower paid.”

However, when the Chancellor made the change, British pension funds were buoyant, with many enjoying surpluses and giving holidays to companies and employees from making further contributions.

As a result, treasury officials said: “Big employer pension schemes will be able to cope at some cost to employers. But members of money purchase schemes would all be potential losers.”

Others said that “there is very big uncertainty over the extent to which pension schemes could absorb the effect of the loss of tax credits.”

However, pension firms blame the tax change for a series of financial crises hitting the industry. A £410 million deficit in Sainsbury’s pension scheme has threatened to derail potential takeovers of the retailer. The combined black hole in the pension schemes of Britain’s top 100 companies stood at £31 billion at the end of January, according to the actuaries Watson Wyatt.

The Chancellor was offered alternatives to the immediate abolition of the tax credits, including phasing the measure in, but chose to ignore those suggestions.

The release of the documents to The Times follows a two-year battle to obtain the information. The Treasury repeatedly refused to release it saying that the public interest in granting the request was outweighed by the risk that doing so would “prejudice ongoing full and frank disclosure to ministers.” The Information Commissioner ruled in favour of The Times last year but the Treasury decided to appeal. The Treasury withdrew its appeal yesterday afternoon.

Graham Smith, deputy commissioner at the Information Commissioner’s Office, said: “We are very pleased that in light of recent Information Tribunal decisions, the Treasury has decided to release this information. We ruled that the information was of significant public interest and that the public interest in knowing how these calculations were made was greater than any public interest in withholding the information. In our view, pensions — and their value — are a matter of considerable public interest.”

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: Ministers were guilty of complacency and a lack of foresight. No consideration was given to the possibility of any significant change in the economy or to the costs of running a pension scheme.”

A Treasury spokesperson said: “The Times analysis is abject nonsense and a complete travesty of the information they have received.

“What these papers show is that from the early 1990s, the Treasury recognised that dividend tax credits were an anomaly in the tax system which distorted business decisions and discouraged long-term investment. Anyone who pretends these decisions have led to the funding problems for pension schemes in recent years, while ignoring the impact of the dot.com crash, the pension holidays in the 1980s and 1990s, and the rise in life expectancy is simply distorting the facts.”

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