Disinformation on the Pensions Crisis in Britain

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Disinformation on the Pensions Crisis in Britain

Public Sector Workers Lobby MPs to Demand Pension Protection

For Your Reference:
Pensions Commission Report

Majority of Workers Face Financial Difficulty in Retirement

Tony Blair Threatens to Fund Pensions by Cutting Welfare Benefits

For Your Reference:
TUC General Secretary: "Companies Have Broken their Pensions Promise"

On October 12, Adair Turner, Chairman of the Pensions Commission, issued his Commission's first report into pensions in Britain. The headline grabbing finding of the Commission's report has been that some 12 million working people in Britain face substantial shortfalls in pension income and that many of these face serious poverty unless action is taken now to address the situation.

The report, however, rather than addressing the growing crisis over pensions in a thorough and all sided way has approached the issue on the basis of a number of politically motivated assumptions. Consequently, it has been unable to get to the root of the pensions crisis in Britain and is in fact a contribution to the growing disinformation over this issue, under which the government is pressing ahead with its plans to withdraw the state's responsibility to retired workers.

In the first instance the Commission's terms of reference, which are "to keep under review the regime for UK private pensions and long term savings, and to make recommendations to the Secretary of State for Work and Pensions on whether there is a case for moving beyond the current voluntarist approach", have clearly been drawn up to exclude any consideration of a retired worker's right to a state pension adequate for their needs. Furthermore, the terms of reference are based on the assumption that the right to a pension is linked to the long term savings of the workers and the only issue on which recommendations are to be made is whether the government should force the workers to save more so they can provide for themselves after retirement. Clearly such terms of reference will make it impossible to address the pensions crisis in Britain and find a solution to it.

The Commission's report states that there will be a "near doubling of the percentage of the population aged 65 years or over between now and 2050". This it argues will lead to a "rapid rise in the dependency ratio". The notion of a "dependency ratio" is a flawed notion based on the refusal to recognise the fundamental human right of pensioners to a livelihood. In a modern society in which the means of production are highly socialised and all members of society depend on these for their existence, the right to a livelihood is essential. Without this, the individual will be left to starve or will resort to crime to survive. Therefore, the claim of the retired workers on society for a livelihood is a just claim which arises from the fact that they are human beings and members of society. This claim has nothing to do with "dependency". The notion of a "dependency ratio" is rooted in the refusal to recognise the right of the pensioners to make such a claim on society. Instead it tries to present the issue of the provision of pensions as though it were one of pensioners being "dependent" on the budget funded by the taxpayers. By this logic, one group must lose out. Either the taxes are cut and the pensioners left to suffer or the pensioners are paid and the taxpayers left to suffer.

It is, therefore, not surprising that based on this flawed logic, the Commissioners arrived at what they considered "the four options that must be chosen from". These are pensioners become poorer relative to the rest of society, taxes and national insurance contributions devoted to pensions must rise, savings must rise or average retirement age must rise. Therefore, while the report notes that "pension right accrual is becoming more unequal and risk is being shifted to individuals sometimes ill equipped to deal with it", its own options for addressing the pension crisis continues down this very road. Regarding contributory factors to the present pensions crisis, the report notes "irrational equity markets" of the 1990s and the "state's retreating role" in the provision of pensions. However, addressing these are not presented as possible options for tackling the pensions crisis.

Responding to the report, Rodney Bickerstaffe, President of the National Pensioners' Convention, stated that the report had revealed how "over the last few years the burden of responsibility for pension provision has shifted from the state, employers and the private sector to the individual. This cannot be allowed to continue." He continued that there were many people who now agreed that "we need a much bigger basic state pension for every older person that is linked to earnings and free from means testing ... if we put our money into providing a secure and improved state pension, we wouldn't have to worry about the prospect of millions – mainly women – facing poverty in retirement both now and in the future." This is a just demand of the pensioners, which must be fought for.

The issue of funding of pensions cannot be addressed without addressing the social product, that is the total wealth produced by the labour of the people of Britain. This cannot include that wealth stolen from other countries and brought back to Britain as repatriated profits, interest payments on debt and so on.  Only by identifying the size of the social product, and how it is being consumed at present will it be possible to make any judgements about how to provide pensioners with a secure and adequate state pension. By unearthing this information the discussion can be had over whose claim on the social product should take precedence. Should the moneylenders have their claim met before the pensioners or should it be the other way round? Should there be a moratorium on the annual payment of the £27 billion interest on the national debt so that this money can be used to fund the pensions for the retired workers? These are the questions which need to be fully gone into before the options available for tackling the pensions crisis can be established.

The issue of pensions, like the issue of the "affordability" of the social programmes is a crucial political issue facing the society. Since the social product is produced by the workers at the point of production, and this is appropriated by the monopolies and under their control, does it not follow that the monopolies must turn over a portion of this social product to meet the claims of the people for social programmes, including pensions? Should not the monopolies meet their social responsibilities to labour, and should it not be a criminal fraud under the law for any contracted agreements not to be met by these monopolies? The disinformation of the government’s Pensions Commission and many other commentators who lay the onus on the workers to "save" and compulsorily fend for themselves is designed to prevent the workers giving the warranted answers to these questions.

Hundreds of public sector workers from across Britain will today (Tuesday) lobby MPs in Parliament to protest against changes that the government is proposing to make to pension schemes. The TUC-organised lobby is taking place under the slogan "Protecting Public Sector Pensions".

Members of about a dozen TUC-affiliated unions representing workers in the public sector will be demanding that MPs support the campaign against government moves to increase the age at which public sector pensions will be paid.

In 2002, the government published its Pensions Green Paper, which sought to increase the normal public sector retirement age from 60 to 65, and to increase the age at which people could take early retirement from 50 to 55.

These changes are neither fair nor justified, and the public service workers are demanding that the government explore alternatives to these unjust proposals to make the employees work longer.

During the lobby, two rallies will be taking place at the Lewis Media Centre, Millbank Tower, Millbank SW1, addressed by general secretaries and senior officials from a number of the participating unions. The speakers include TUC General Secretary Brendan Barber; Unison General Secretary Dave Prentis; PCS General Secretary Mark Serwotka; FDA General Secretary Jonathan Baume;) GMB General Secretary Kevin Curran; NUT General Secretary Steve Sinnott; FBU General Secretary Andy Gilchrist; Amicus Deputy General Secretary Paul Talbot; CSP Assistant Director Lesley Mercer; NATFHE Vice President John Wilkin; and TGWU National Officer Peter Allenson.

Commenting on the lobby, TUC General Secretary Brendan Barber said: "It is generally recognised that public sector workers earn less money than people who do their equivalent jobs in the private sector in return for a more superior pension. Now the government wants to take this away with insufficient time spent exploring any alternative proposals. Our lobby aims to sign up as many MPs as possible to the union campaign to protect public sector pensions."

The report of the Pensions Commission. "Pensions: Challenges and Choices", was released on October 12. The report said that workers might have to save more, stay at their jobs longer or pay higher taxes – or a combination of all three – to enjoy a comfortable retirement.

The Commission is a panel of government-appointed "experts". It made no recommendations on future action but is expected to do so next year.

According to news agencies, analysts praised the report as the most comprehensive explanation yet of the country's pensions problem.

"The case has been made far more clearly than before that the (pension) system needs to change," Tim Keogh, European partner at Mercer Human Resource Consulting, said.

By 2050, the percentage of people aged over 65 will have doubled and will go on rising, which means governments, firms and individuals cannot hope to "muddle through", Commission chairman Adair Turner told reporters. "Major adjustments to average retirement ages and to pension provision are required. Over nine million working people will face pensions they may consider inadequate, unless they save more or retire much later than their parents," he said.

The issue of compulsory savings was one of the ideas that the Commission was asked to investigate. It said there was no clear evidence that countries imposing compulsory schemes raised overall savings significantly. In Australia, which has a compulsory private pension system, a study by the country's national central bank found only a modest rise in overall savings, the report noted.

It said a rise in the state retirement age on its own would not solve future pension shortfalls. "Greater resources flowing to future pensioners, whether via the state system, or via private funded pensions, will be required," it added.

The report said it had not estimated the size of any "savings gap" – the difference between the amount of current savings and the level needed for an adequate retirement income.

Under one set of assumptions about retirement ages for men and women, taxes and national insurance contributions would have to rise by 57 billion pounds in current terms to deliver benefits in 2050 comparable to those available now, the report said, indicating the prevailing government thinking.

More than half of working adults in Britain will have some financial difficulty in retirement, facing incomes of 40 percent or less of their final salaries, a leading investment firm has reported.

J P Morgan Fleming Asset Management, the US-owned fund firm, said last month that only 26 percent of British workers were set for a "comfortable" time with at least half their final salary. Some 54.5 percent face difficulties according to the report.

The 26 percent figure compared with 43.2 percent in 1996 when J P Morgan first issued a pensions report.

Speaking in the Hungarian capital Budapest in October at a "progressive governance" conference, Tony Blair said that tackling those "languishing on benefits" were at the top of his agenda.

"In the UK today we have a big debate about how we can provide pensions for people for the future," Tony Blair said at the conference organised by the Policy Network think tank. "And we will probably have to spend more as a government supporting pensioners in the future. But that will mean we have to spend less, particularly on areas where there are people who could work but who presently languish on benefits."

Number 10 adviser Patrick Diamond also used the event to argue for compulsory classes for the unemployed and for putting people into work in what he called socially useful jobs such as community wardens.

Speaking on "keeping the pensions promise" at the CBI pensions conference taking place at the TUC Congress Centre in October, Brendan Barber, TUC General Secretary, said that British companies have broken their promise in what he referred to as sharing the burden of pensions saving with employees.

He said, "Pensions provision in the UK has until recently been a very positive example of social partnership in practice. Employers, employees and state all played their role. But our system was not the unmitigated success that has sometimes been claimed."

Brendan Barber referred to the Government Actuary’s Department pension scheme surveys. The 1953 survey found that there were around 6.2 million workers in occupational schemes. Ten years later, in the 1963 survey, GAD reported scheme membership of 11.1 million. And after hitting a high point of 12.1 million in the mid-1960s, pension scheme membership held steady at around the 11 million mark throughout the 70s and early 80s until its recent decline.

The TUC General Secretary pointed out that occupational schemes have never covered more than around half the workforce. And, he said, until relatively recently they often did a poor job of meeting the needs of part-time and low-paid workers, often women. In addition, although the retreat from good occupational schemes has recently accelerated, it is clear that employer commitment to such schemes has been on the wane for some time.

"Employer pension contributions as a percentage of GDP hit a peak at the beginning of the 80s and then fell sharply. There has been an increase in contributions recently but they are still well below where they were," he said.

"Many employers used the convincing argument that, since they shouldered the investment risk in final salary schemes, they should have control of the surplus. And while the bull market lasted, employers certainly took advantage. According to the latest Inland Revenue statistics, employers used surpluses to take contributions holidays and reductions worth £18.15 billion between 1988 and 2003. And in the same period they took direct refunds of surplus worth £1.2bn.

"But, the argument ran, if things became tight the employer would fulfil their part of the bargain and keep the scheme going. There was an implicit promise that employers would do the right thing."

Brendan Barber continued, "Unfortunately what we have seen over the past three or four years is that the pensions promise in relation to occupational schemes was not as solid as it had seemed. From 2000 onwards stock markets around the world turned south, putting immense pressure on UK funds with their high equity exposure. Large deficits appeared. Most firms had to abandon the contributions holidays or reductions they had been taking, and even make extra contributions to restore funding."

Rather than shoulder the burden of investment risk as they had promised, Brendan Barber said, many employers decided they wanted to get shot of it once and for all. Final salary schemes were shut in their hundreds, not just to new members but some to current members too. The TUC General Secretary said that the "wholesale flight from defined benefit provision has angered many people within the union movement and beyond".

He continued, "The move away from defined benefit provision is quite clear. Research by the NAPF found that 1 in 4 final salary schemes closed in 2003 alone. And the TUC’s own estimate is that amongst the UK’s biggest employers, over half no longer offer DB [Defined Benefit] schemes [usually linked to the salary level in a final year of work] to new entrants. Amongst smaller firms the picture is even worse.

"What was once regarded as the norm in pensions – a secure, guaranteed retirement income – has been taken away from more and more employees. In future many employees will be in defined contribution schemes. This transfer in risk from employer to employee is on its own a major change in the nature of the pensions settlement in the UK. But it has been accompanied by a further erosion of employer commitment to pensions.

"It is patently clear that the level of contributions going into DC [Defined Contribution] plans [also known as money-purchase pensions, in which benefits are linked to stock market moves] is inadequate. According the Government Actuary’s Department’s most recent survey, the average combined employer and employee contribution to a DC scheme is less than 8% – half of what most would argue is necessary to fund a decent retirement income. In short, thousands of employees are being shifted into riskier schemes which may not suit their needs, whilst at the same time employers are significantly cutting back the amount they contribute.

"The Pensions Commission report does not mince its words on this subject. Talking about the projected decline in future pension saving it says: ‘The biggest element of this decline is the reduction in the generosity of employer pension contributions.’ "

Brendan Barber continued, "How many times do we hear companies repeat the words 'people are our greatest asset', yet often the very same firms are stripping away retirement security for their employees. And what kind of message does reneging on the pensions promise send out to both current and future employees about the attitude of the company to its staff?"

Brendan Barber condemned companies’ double standards over pensions. He said that this creates great anger amongst employees. "Too often these days we see some companies piling huge amounts into the pensions of directors whilst claiming that pensions for staff are too expensive," he said. "We estimate the average accrued annual pension for a FTSE-100 director is now almost £170,000 – 26 times the average occupational pension. The average transfer value is £2.15m, with directors usually having more generous accrual and contribution rates than those they offer to their staff. And we have seen examples of companies shutting DB schemes for staff but retaining them in the boardroom, and cases of supposedly closed DB schemes admitting new directors."

The TUC General Secretary concluded by explaining the view of the TUC on some of the solutions. He said that the TUC believes that the time is right to move beyond the present voluntarist model of workplace pensions provision. It supports greater compulsion, believing it would significantly improve both the extent and quality of pensions coverage. In addition, he said, the TUC can see that under a voluntarist approach the level of contributions into DC schemes would be far too low to provide decent pensions. The TUC believes that compulsion on employer and employee to pay into a pension would tackle both of these failings in the current structure, he said.

"The TUC does not believe that decreasing standards of living for future pensioners are either morally or politically acceptable in the world’s fourth largest economy. And while individuals must be given greater flexibility around retirement and the chance to work longer if they desire, people should not be forced to work into their old age," Brendan Barber said.

His conclusion was that the amount being saved must be increased. He advocated compelling employers and staff to contribute more, saying that those who call this unreasonable are often the same people who think it is acceptable to force employees to work till they are 70. "And those who argue that compulsion is politically dangerous, because it would be seen as a tax," he said, "are often also those who seem to believe a five-year rise in the state pension age would not trouble the voting public."