The developing pension crisis
In line with New Labour’s neo-liberal onslaught
against workers’ pay and conditions, pensions are under attack. Tony
Blair’s government is trying to force us to work longer and receive less
when we retire. KEN SMITH reports.
THE FIRST FEW weeks of 2006 have seen an escalation
of the attacks on workers’ occupational pension schemes. The closure of
final-salary schemes at Arcadia, the Co-op and Rentokil, along with the
ending of final-salary schemes for new entrants at British Gas, are
being broadcast as the death of occupational pension schemes, where
workers were guaranteed a defined benefit for their contributions. A
whole generation of workers faces uncertainty about retirement income
and the prospect of penury in later years.
Previously, the signing of the public-sector
framework agreement on pensions and the publication of the Turner Report
on the future of state pensions have seen the issue come fully on to the
political radar.
The signing of the public-sector framework agreement
by cabinet minister Alan Johnson and leaders of Britain’s public-sector
unions provoked foaming indignation from big business, Pensions
Commission chairman, Adair Turner, and Chancellor Gordon Brown. Turner
has warned that he may issue another report to tackle the complications
the deal has caused him and, like Brown, argues for its renegotiation.
The deal protected the pension rights and the right
to retire at 60 for current health workers, teachers, further education
lecturers and civil servants, although it accepted that there could be
an increase in the retirement age for new entrants subject to
negotiations which are now taking place in the respective sectors. No
doubt, it would have been preferable for the unions to have ensured that
there was no detriment to the rights of future entrants at the time of
the deal. Nevertheless, the fact that existing members’ rights were
protected and unions were able to negotiate the shape of schemes for new
entrants represents a substantial retreat by the government from its
previous position.
Some have raised that had the unions stuck out for
more they could have won the same deal for new entrants. This is
possibly true. But such a scenario takes no account of what most of the
union leaders were prepared to accept at the time and what the balance
of forces were at that stage of the pensions’ battle. Some union leaders
were apparently prepared to accept an increase in the retirement age of
two or three years for existing members, to be phased in from 2018.
Mark Serwotka, general secretary of the civil
servants’ union, PCS, correctly stopped this retreat and refused to
accept these detrimental terms. Johnson then came back and offered no
detriment for existing members in health, education and the civil
service. The pension schemes of local government workers, fire-fighters
and others were not covered by this agreement as their schemes are
negotiated with local authority employers through the office of the
deputy prime minister, John Prescott. As Socialism Today goes to press,
those workers are preparing to ballot on industrial action to protect
the pension entitlements of the existing workforce.
Although negotiations are still taking place in
those schemes, given the noises being made by the employers and
government about renegotiating the public-sector framework agreement,
then it is possible that the government will try and play hardball with
these groups of workers, trying to ride out strike action and appearing
tough on ‘reforming’ public-sector pensions.
However, the framework agreement, despite some
complications it left in its wake, represented a significant political
retreat on the part of the government, without representing a complete
victory in defence of all workers’ conditions.
The local government and fire-fighters’ unions were
asked by unions like the PCS, at the time of signing, whether or not
signing up without an agreement being reached in their sector would
detrimentally affect their own struggle for existing members’ pension
rights. Their response was that the concessions won by the PCS and
others would strengthen their position.
The general perception amongst trade union members,
both in the public and private sectors, is that the public-sector
framework agreement represents a bridgehead against the widespread
assault that is occurring against pensions. However, as The Socialist
newspaper warned after the government’s climb-down, this was one battle
in the pensions war, which is far from over.
Certainly, union leaders like UNISON’s Dave Prentis,
in particular, thought that the government, having conceded the deal to
one section of public-sector workers, would automatically concede it to
others – believing the union’s ‘influence’ with Labour through its
affiliation to the party would bring a ‘sensible’ settlement. But, as
the subsequent outcry from the bosses shows, the real intention of
government and big business – similar to the neo-liberal offensive on
pension rights in other countries - is to drive a coach and horses
through the occupational and state pensions of the majority.
The common refrain of the bosses’ organisation, the
CBI, Brown and Turner, was that the agreement would make it much harder
to get other workers, especially in the private sector, to accept an
increase in the state pension age, as well as to contribute more to but
accept less in their occupational pensions. These representatives of the
capitalist class have concerns that the successful action of the
public-sector workers could inspire private-sector workers to take
action also. Indeed, the action of British Gas engineers at the end of
2005 showed the explosive mood there is over attempts to stop
final-salary schemes amongst workers who have spent decades building
them up. Further action by Co-op workers may ensue over the attempts to
close their final-salary scheme despite the pension fund being "£2.4
billion in surplus under any measure", according to the GMB union.
The response of the leaders of the local government
and fire-fighters’ unions to the intransigent stance of the government
and local government employers, who want to end the right to early
retirement and bring in other detrimental measures, will be a crucial
indicator for the government and big business as to how far they can
continue their pensions’ assault.
Local government union leaders in particular,
despite preparing a ballot for action, are prevaricating, hoping the
government will ‘see sense’ in negotiations and offer them the same
protection as was offered to other existing public-sector workers. Yet,
the lesson of the government’s two enforced retreats in March and
October 2005 was that the threat of co-ordinated mass industrial action
is necessary to secure workers’ entitlements.
The Turner report
SHOULD THE GOVERNMENT get away with detrimentally
changing the conditions of existing local government workers and
fire-fighters then it may feel the way is clear to come back and attack
the pension entitlement of other public-sector workers, as well as carry
through an increase in the state pension age to 68 - as the Turner
Commission recommends.
The Turner Commission’s report is supposedly an
attempt to secure the long-term future of the state pension at a
‘reasonable’ rate that future British governments and capitalists can
afford. The commission spent years researching pension schemes in
different countries and took a literal paper mountain of submissions
from various parties. However, the fundamental starting point of the
commission’s brief was that people living longer were creating a
‘pensions time bomb’, whereby the country would not be able to sustain
the pensions of future generations without radical changes to the
current system.
The commission recommends raising the state pension
age to 66 by 2030 and then to 68 by 2050. It also suggests introducing a
new national pensions saving plan – expected to be modelled on the
system now operating in New Zealand.
Turner, as a former head of the CBI, was unlikely to
ever come up with genuine ‘radical’ proposals that tackled the real
pension crisis in this country. And his proposals appeared to have at
least lukewarm support from Tony Blair and other government ministers,
along with key sections of big business. Yet, Brown and the Treasury
immediately rubbished the Turner team’s economic projections. Brown’s
reaction was conditioned by his belief that he is likely to be prime
minister when changes could be implemented. Most of the initial costs to
a future government in any transition to Turner’s new scheme, if
implemented, would be in the first years.
In the long term, Turner aims to stay within
approximately the same level of gross domestic product being spent on
pensions as the government’s long-term projections envisage. However, in
the immediate future, a big chunk of the costs involved in moving
towards Turner’s proposed new scheme will coincide with Brown’s hoped
for premiership.
Brown is also concerned that this will coincide with
a downturn in the British economy and a growing shortfall in
public-sector finances. Another of Brown’s objections is that he wants
to see through his programme of pensioner and tax credits, believing
them to be a cheaper way of providing a minimum safety net for the
millions who endure pensioner poverty.
The Turner Commission, the CBI and probably Blair as
well are concerned that having ended defined benefit schemes for
millions of workers will pauperise large sections of the middle class.
So, much of Turner’s plans aim to avoid this layer being driven into
pensioner poverty in the future whilst not giving any substantial
concessions to the millions now in poverty in old age.
In essence, Turner’s plans are a variation on Tory
shadow spokesperson David Willetts’s proposal that the pensions crisis
should be ‘socialised’. This means that the burden of responsibility for
minimum pension provisions for all workers should be taken on or
underwritten by the state and individuals rather than through business
providing occupational pension schemes.
This is borne out by the fact that the Turner
Commission does not address the real and current pensions crisis that
exists and is growing – a crisis which reflects all the class divisions
of capitalist society in Britain in the 21st century.
The real crisis
IN THE UK workers get 37% of their working-life
earnings on retirement on average. In the Netherlands workers get 70%,
in Sweden 76%, and in France 71%. The vast majority of pensioners in
Britain live below the official poverty line. Four out of ten live on
less than £10,000 a year. More than 1.6 million pensioners have returned
to work to supplement their meagre pensions. Millions of pensioners,
according to a report in the Daily Mail in February 2005, cut back on
the essentials of heating and electricity.
A report in November 2005 revealed that over two
million women are not entitled to a state pension or have minimum
entitlements. A survey by Scottish Widows showed that 50% of women who
are saving for retirement stop when they have a child. Only 15% of women
who have children under five are paying pension contributions. And for
many, either bereavement or divorce deprives them of the limited safety
net of their partner’s pension. As a consequence, about 1.3 million of
the 1.9 million people who rely on pensioner credits to lift them out of
absolute poverty are women.
At the same time many go without benefits they are
entitled to. In 2004, £2.93 billion in payments were not claimed because
pensioners did not wish to go down the road of means-tested benefits or
did not know what they were entitled to. As many as twelve million
workers are not saving enough for a decent retirement. A report by B&CE
Benefit schemes in October 2005 concluded that 37% of full-time workers
– as many as 6.5 million people – are not contributing to a pension.
They face cuts of up to 30% in their retirement income compared to
current pensioners.
The TUC has warned that a whole generation has "no
idea how much poorer they will be in retirement than their parents". It
says that, "saving for a decent retirement will remain an insurmountable
obstacle for young workers". The TUC’s Pay, Poverty and Pensions report
shows that only one in ten hotel and restaurant workers and a third of
people working in retail and distribution have a workplace pension.
Nearly 40% of 16-25 year-old workers are employed in these sectors (1.7
million young people).
The sectors where most workers have an occupational
pension employ few young people. Around 90% of workers in energy and
water have workplace pensions but under 1% of under-25 year-olds are
employed in these industries. For young workers in their 20s today, it
is calculated that they will have to increase their pension
contributions ten-fold if they are to get a decent pension by retirement
age. How will young workers faced with debts from loans to fund their
education and the ever-spiralling cost of rents and mortgages ever meet
this commitment?
And making workers work longer will bring further
health inequality at a time when that is widening because of the
policies of the New Labour government. Now both the bosses and the
government could send more workers to an early grave if they get away
with cutting pension entitlements even further. The CBI raised with the
Turner Commission that there should be a compulsory retirement age of 70
to help ‘overcome’ the pensions funding crisis.
For many workers, the need to resist the attacks on
pensions will clearly be a matter of life and death. Even if workers
survive beyond 65 they will have to work longer and for less reward both
whilst in work and in retirement.
Class inequality
FOR THESE working-class people the Turner report and
the approach of this government offer nothing. It does nothing to
address the class inequality in pension provision. Turner’s approach
instead concentrates on state intervention and provision to protect,
primarily, those who have lost or are about to lose final-salary defined
benefit schemes.
Furthermore, the fundamental argument that Turner
has accepted from the bosses and government is that an ageing population
presents an unsustainable burden to the public purse. However, this is a
deep-seated deception. According to Fiscal Sustainability and the Ageing
Population, published by the Treasury in December 2003: "The changing
demographic structure of the UK’s population - especially the ageing
aspect - is projected to have only a limited impact on public spending
over the coming decades". (p49)
Other countries currently spend a much higher
proportion of GDP on pensions. The average among European Union
countries, according to a Pensions Policy Institute Briefing Note
(Number 3), published in July 2003, was 10% and in OECD countries it was
7.5%. Britain was second lowest in the EU on just over 5%. Only Ireland
was lower at 4.6%.
However, Ireland like all other major EU countries,
planed to increase the percentage. In Ireland’s case it aimed to
increase it to 9% of GDP. At that time, Britain stood alone as the only
major EU country to plan to decrease GDP spending on pension provision
by over 1%, to leave it at just 4%. Contrast that with the 17% of GDP
spent by Austria.
Overall, the major 15 economies in the EU at the
beginning of the 21st century planned to increase GDP spent on pensions
from an average of 10.4% to 13.3%. (EU Economic Policy Committee report,
2001) The UK government, though, does not plan to increase GDP spending
on pensions. If things remain as they are, this means that by 2040 each
individual pensioner will receive on average a 40% smaller share of GDP
than pensioners do today, according to the Pensions Policy Institute.
This is because the number of people of state pension age or older is
expected to increase by 40%. Accordingly, the value of benefits paid per
pension relative to the size of the economy will decline. However, since
that report, the trend in other EU countries has been to follow the
Anglo-Saxon neo-liberal model and this entails cutting back state
expenditure on pension provision.
Turner’s proposals represent a broadly similar
approach to working within similar fiscal constraints as a future Brown
government envisages. There was never any question of it recommending a
substantial increase in the proportion of state expenditure going to
pensions. The argument between the Treasury and the Turner Commission
represents squabbling over pennies, in public-sector expenditure terms,
not over fundamentals.
United working-class approach
THERE COULD BE a substantial increase in state
pension provision, however, if there was a fundamental redistribution of
wealth in society. Socialists argue for a socialist transformation of
society and the implementation of a democratic, socialist economic plan
which would allow for the right to retire at 55 or even 50. There could
be a guaranteed retirement income of at least the average wage for all,
as well as the provision of cheap accommodation, transport and other
utilities.
But, even in the immediate future, a fighting
leadership of the trade union movement and a mass workers’ party that
genuinely fights for working people could radically transform the
prospects in retirement for the millions now living in poverty.
At the 2005 Trades Union Congress, Socialist Party
and National Union of Teachers (NUT) executive member Linda Taaffe
challenged Turner about what the commission would do about tax evasion
and the obscene wealth being accumulated by company directors in wages
and pension schemes. Turner replied that it was ‘outside the remit’ of
the commission.
A recent report showed that Britain’s 50 biggest
quoted companies avoided paying over £20 billion in corporation tax over
the last five years. If that money had been available and was added to
the £25 billion surplus in the National Insurance fund – because state
pensions have dropped so much relative to earnings in the last 20 years
– along with the abolition of tax relief for the richest taxpayers, then
nearly £50 billion would be available to increase state pension
provision. That is before the £27 billion a year state expenditure on
defence and over £24 billion a year spent by the government on debt
interest repayment is added.
Taking this money and using it to benefit the
poorest are outside both Turner and the government’s ‘remit’. But for
trade unionists and socialists it will prove to be increasingly within
ours.
In essence, pensions are deferred wages and the
fight for decent pension provision is part and parcel of the workers’
struggle with the bosses over surplus value. In 2004, FTSE 100 companies
paid out nearly £40 billion in dividend payments to shareholders
compared to just over £10 billion in pension contributions. Clearly,
whether or not there is a pensions’ crisis depends on which side of the
class divide you are on. Any gain in pension provision, or stopping
attacks on pensions, is something workers will have to continually fight
the bosses over.
The battle over pensions has entered a new stage in
Britain. British workers are beginning to catch up with their European
counterparts in fighting back against the assault on their pension
rights. The battle has been opened and after years of retreats in the
private sector, public-sector workers have shown that the capitalists’
assaults can be stopped. The united working-class approach, particularly
developed by the socialist leadership of the PCS in the public sector,
needs to be built upon to draw in all working-class people and broadened
into a struggle to defend and improve pensions for all.
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