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Proletarian issue 10 (February 2006)
The great pensions robbery
British capitalism hopes to swindle the working class into paying more and receiving less.
Softly, softly, riding over a sea of red herrings, the British bourgeoisie is positioning itself to make enormous reductions in the amount paid out to pensioners in order to be able to increase their profits at the expense of the working class. Whatever the sanctimonious cant about increased longevity making pensions ‘too expensive’, the fact is that it is purely the bourgeois thirst for profit that makes pensions ‘too expensive’.

Former CBI chief Adair Turner, aka Lord Turner of Ecchinswell, has been beavering away for the last two years to produce recommendations as to how to deal with the ‘pensions crisis’. That is, he has been asked to come up with ways in which the bourgeoisie might be able to reduce pensions and/or increase the amount working people have to pay for their pensions. In other words, the capitalists are planning to reduce the amount in workers’ wage packets by using the excuse of their needing to save for pensions – and to do so in such a way that it might be possible to keep the resistance of the working class to these cuts to a minimum.

Accordingly, Turner has come up with the bright idea of delaying the age at which people receive their pensions to 68 or later, on the basis that because of greater longevity we will be collecting our pensions for just as many years as formerly did a pensioner who had retired at 65. As we shall see, there is an array of apparent concessions, such as restoring the link with earnings to ensure the value of the state pension is in the future maintained, to cover the fact that what workers will in the future receive by way of state pension will be less over their lifetimes, and what they will pay in contributions in one way or another will be more.

To assist in highlighting these concessions, and to make them appear more valuable, the spin doctors have set up a good cop bad cop scenario in which Turner is the good cop, wanting to give us more, while rotten old Gordon Brown is the bad cop, saying that these concessions are just too expensive. The idea is to get the unions all opposing Brown’s stinginess and consequently embracing Turner’s cuts because they’re not as bad as what Brown is demanding.

But Turner’s ‘generosity’ is entirely illusory. Today, people aged 65 and over make up 16 percent of the population. Their state pensions cost the government 6.2 percent of GDP. By 2050 pensioners will be 25 percent of the population (a 50 percent increase), yet the cost of pensions is projected to rise only to 8 percent of GDP (ie, less than 25 percent more). It is fairly clear that the intention is that the cost of the state pension per pensioner is to halve.

It is important to bear in mind through all the quasi arguments with Gordon Brown that this is the pill that Turner requires us to swallow.

In the background, and quite apart from everything Turner is proposing, it has already been decided that the pension age of women is to rise in 2010 (ie, in four years’ time) from 60 to 65. This will represent a saving to the Treasury of some £5.5bn a year, which will no doubt come in handy for conducting the war in Iraq and other places.

It is certainly not intended to be spent in providing a pension for women deprived of one as a result of not making national insurance contributions when they were looking after children or elderly parents and had no income. Currently, 70 percent of women pensioners fail to qualify for a full state pension for this reason. Of course, such women, if they have no other income, are entitled to apply for means-tested support, but such is the complexity of the application process that, although half of all pensioners qualify for support, only a quarter actually receive it. One of Turner’s concessions is partly to rectify this situation, as we shall see, but the concession is far from overwhelming.

The Turner proposals

As has already been mentioned, the most important part of the Turner proposals – the one that will drastically reduce the social wage by cutting pensions – is to delay pension entitlement to the age of 68. To reduce proletarian resistance, the cut will be introduced gradually. Pensions would be paid at 66 in 2030 (those currently aged 43 will be the first to be affected), at 67 in 2040 (affecting those currently aged 33), and 68 in 2050 (applying to everybody now under 23).

Obviously the ‘bad cop’ will be trying to make the retirement ages higher and to introduce these higher ages sooner, but, regardless of the fact that larger cuts than those proposed by Turner could be made, his recommendation nevertheless represents a major cut in social provision for the elderly. Moreover, this cut is being made at a time when ‘superannuation’, ie, the company schemes available to employees in the private sector, are being drastically reduced, so that in the future pensioners will be far more reliant on the state pension than has been the case in recent decades.

The Express tells us that today, “Only one in four workers … belongs to a ‘good’ company pension scheme.

“Falling interest rates have increased the combined deficit of the UK’s top listed companies by £10bn in the last year alone.

“The news, which has caused dismay among millions of workers and union leaders, comes as increasing numbers of large companies close their final salary pension schemes.

“TUC general secretary Brendan Barber said: ‘On pensions we have gone backwards. Employers are continuing to walk away from their responsibilities.

“‘Only one in four private sector employees is now a member of a good employer pension scheme and the trend is downwards.’ Mr Barber pointed to the example of Rentokil which has revealed plans to close its final salary scheme to existing members …

“His remarks came as consultants Deloitte & Touche warned that the UK stock market would have to rise by around 30 percent to eliminate company pension deficits.”
(‘Why 75 percent of us don’t have good pensions’ by Kirsty Walker, The Daily Express, 28 December 2005)

Moreover, according to Ian Lyall of The Daily Mail, more companies are likely to follow Rentokil’s example: “Employees at BT, Lloyds TSB, HSBC, BAE, BP and Unilever are among those facing the worst problems. Each firm has a pensions black hole estimated to be in excess of £2bn.” (‘Pensions black hole has grown by £10 billion in a year’, 27 December 2005)

Each is therefore contemplating depriving their employees of all or part of their compulsory savings under the company pension contribution scheme – savings made from wages. These companies, these super-rich multinationals, are in effect proposing to cut their employees’ wages retrospectively – an excellent way, from their point of view, of maintaining their record profits!

Good news for those over 75

Under the Turner proposals, not only will the state pension be paid later but workers will be expected to work longer and thus contribute national insurance payments for a greater length of time – thereby increasing the cost to them of the pension that they may never live long enough to collect.

Turner is proposing that receipt of state pensions will be dependent on national contributions only up to the age of 75. At 75 the pension will become “universal” . By that age, one in three men and one in four women has died, but still, for those, especially women, who were hitherto not entitled to a pension but only means-tested benefit, it will save hours of form filling in their old age. It also means that savings can be made in the number of civil servants who are needed to process all those applications for benefit, so it should not be an expensive concession for the bourgeoisie.

Imperceptibly, however, Turner is proposing a change that may deprive many pensioners, especially those of foreign origin, of their pension altogether. The pension, being no longer linked to contributions, will be available on the basis of residence. This will certainly cause difficulties to old people who retire back to the Caribbean or the Indian subcontinent, for example, after a lifetime of working in the UK, as well as to the British-born pensioners who retire to countries where the cost of living is low in order to eke out their pensions better.

The National Pensions Savings Scheme

There are no proposals, naturally, to increase the pension when it does start – only to make sure that, unlike the present pension, whose value has dropped by some 30 percent since Mrs Thatcher decided pension increases should be linked to prices rather than earnings 25 years ago, it does not actually decline in purchasing power.

With company schemes becoming much rarer in the private sector, there is some discomfort among the bourgeoisie as regards the question of what exactly will happen to the old in the future. Turner tries to address this problem by proposing a contributory scheme that will be run by the government but will operate much like a private defined contributions scheme. Its main advantage will that it will be cheaper to run than private schemes (costing 0.3 percent of investment rather than the 1.3 percent or more that is usual in the private sector). For those who save for 40 years towards their pension, this difference in administration charges means a fund at the end of that period some 30 percent higher than would have been the case if a typical private pension had been purchased.

In order not to put the noses of private pension providers too much out of joint, Turner proposes a top limit on the amount that can be saved through the NPSS. The plan is that each employed or self-employed person would be expected to contribute a minimum of 4 percent of pay (with a maximum of 8 percent), while employers would be obliged to contribute a further 3 percent, added to which there would be a ‘contribution’ from the state in the form of tax relief amounting to some 1 percent in value. The total pension saving, therefore, would be a minimum of 8 percent and a maximum of 12 percent of earnings. In actual fact, actuaries have calculated that an income-replacement pension would on average require a lifetime of contributions of 15 percent of earnings, which is the norm in the case of the occupational schemes nowadays typically enjoyed by professionals who receive a tax free lump sum equivalent to about a year’s wages plus a pension of half final salary in return for their contributions.

This pension is quite different from that provided through national insurance and the new proposed ‘universal’ pension. In the first place, workers can opt out of the scheme, as undoubtedly many of the lowest paid will since they need all their wages to live on. Secondly, the scheme will only be available to private sector employees. because public sector employees, including the MPs who will be asked to vote to accept Turner’s proposals and also union leaders, enjoy a far better scheme under which their occupational pensions are both paid earlier and linked to final salaries. Thirdly, the amount of pension workers will receive will depend on how much they have ‘saved’ and how well these ‘savings’ have fared wherever they have been invested (individuals will have some say as to which type of investment they want ’their savings’ to be used for.

Whatever amounts workers have managed to save will be used to purchase an annuity for them. In other words, they may lose part of the pension they expected if the fund in which they have invested goes down in value – there are no guarantees that a pension will be of any minimum value. As against this, if workers die before becoming eligible for their pensions, their ‘savings’ will be part of their estates and be paid in accordance with their wills. If pension funds are to be accessible in this way, it is likely that monies saved will also be available to creditors who will be able to help themselves to workers’ pension entitlements if they get into difficulties with debt.

While it is nice to think that your relatives will have the benefit of your pension if you die before you are able to enjoy it, by the same token, the money is not going to make the lives of other pensioners more comfortable, and neither is the money of other pensioners who die before they qualify for a pension going to be transferred to you, if you survive longer, to ensure you have a better pension (as would be the case with national insurance).

All in all, by the time you have paid national insurance contributions for longer and NPSS payments, the contributions you make towards your pension entitlement will be considerably higher than would have been the case until now.

The longevity myth

The idea that we cannot afford to maintain the present system of pensions because people live longer is recognised as ridiculous even by more honest sections of the bourgeoisie. The Business of 4 December 2005 states: “Nor is it the ageing population that is the problem: the ratio between working age people and pensioners is not as relevant as that between active and economically inactive people, which will change relatively little over coming years. Rather, the crisis will come in the medium term when the consequences of a collapse in private savings become clear.” (‘Why pensions proposals are the worst of all worlds’)

So how can it be that, if there are more people of pensionable age in relation to people of working age, it is not in fact relatively more expensive for each worker to support the elderly? The answer comes down to the limitations put onto employment by capitalism.

Under the present system, the number of jobs available will not increase just because the elderly have to put off their retirement by a number of years. If an old person works those three years, the younger person who would have stepped into his job will be unemployed, and therefore ‘economically inactive’ in the place of the person who would otherwise have been retired.

As was explained in Lalkar of January 2005, “A larger pool of labour means greater competition for jobs and hence lower wages. If capitalism at present is suffering a crisis of overproduction, where it cannot sell all that is produced and is therefore forced for economic reasons to close down production lines, how is it possible that a solution to the pensions crisis could lie in putting pensioners to work until they are 70? Even for the bourgeoisie this is a complete non-starter. What it really means is that the bourgeoisie is toying with the idea of not letting people have a pension until they are 70, regardless of whether they work or not. The pension, however, is so paltry that there is little to be gained from denying it to people – the alternative is to pay them benefits which may well be higher.

“The only way that the bourgeoisie can gain from this is at the expense of the middle-class elderly who will be forced to draw on their savings and sell their houses to free up cash to support themselves in the years between ceasing work and their pension entitlement coming to fruition, thereby ending up as destitute as working-class pensioners.”
Of course, this assumes that welfare benefits survive the bourgeoisie’s desperate efforts to boost profits at the expense of the social wage!

Conclusion

It is important that working-class people realise that capitalism, notwithstanding its awesome ability to modernise production, is not able to provide a decent living for the overwhelming majority of humanity – besides which it subjects the planet to war and ecological destruction in its bid to capture the profitability that it needs to survive the battle of competition.

Nothing could be clearer from this pensions crisis than that capitalism is long overdue for retirement, death and burial.


> Unions response to the pensions crisis




> Leaflet: A decent pension is a right for all


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