Attacking public-sector pensions
New Labour’s neo-liberal drive is continuing with plans to
drastically cut pension provision in the public sector. If it goes through,
workers will work five more years, then receive a lower pension. The move has
caused widespread anger among workers with ever-increasing rank-and-file demands
for cross-union industrial action. KEN SMITH reports.
THE BLAIR GOVERNMENT’S justification for its wholesale
assault on public-sector pensions is that as a society we can no longer afford
to pay the sums we are currently paying ourselves in our old age because we are
all living longer. So, they claim, we all have to reconcile ourselves to paying
more to the state and occupational pension funds in return for working longer
and getting less at the end of our working lives.
The bosses’ organisation, the CBI, claims that there is a
huge pensions crisis and that we should all work at least until we are 70,
implicitly because their system can no longer afford to allow workers to retire
at 60 or 65. And the Turner Commission on pensions, headed by Adair Turner,
former head of the CBI, has echoed that conclusion and is preparing the ground
for such bitter recommendations when it issues its final report in the autumn.
As if that wasn’t enough of an indicator of how the bosses
believe workers should be treated, the companies that make up the CBI, in the
main, have been slashing workers’ pension entitlements in the private sector for
the best part of the last decade.
There has been talk of a looming pensions ‘crisis’ for
years, but if there is one then it is caused by the actions of the bosses and
the government in trying to boost the profitability of the capitalist system,
rather than workers living longer. British society has gone from a position of
having one of the better pension provisions for workers – though socialists
would argue that it was far from adequate – to a position where 11.3 million
workers are not making any pension contributions at all. And, amongst people
over 25, 12.1 million people are unable to save enough to enjoy a comfortable
retirement.
This could lead to a situation, according to projections,
where pensioners will suffer a 30% decline in relative incomes unless, the
bosses claim, people increase savings, pay more taxes and accept an increase in
the retirement age.
Bosses in the private sector took the option of taking
‘contributions holidays’ (taking advantage of the boom in share prices, which
temporarily boosted the book value of pension fund assets) and ending
‘final-salary’ pension schemes in the 1980s and 1990s in order to boost their
profitability. Through this, according to the TUC, the bosses saved themselves
over £20 billion in reduced employer contributions from 1987 and increased their
company profits by over £4 billion.
Now the bosses in other countries, especially Europe, and
governments of the advanced capitalist countries are attempting to emulate their
British counterparts. Similarly, the Blair government in Britain, despite
decades of the state pension and occupational pensions falling behind the rest
of Europe, plan to go further and reduce provision for those over working age to
levels that existed in Britain over two centuries ago.
But the arguments of the Blair government, in common with
those of other countries attacking social security and pension budgets, are
based on a fundamental deceit. According to a document from 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". (Fiscal Sustainability and the Ageing
Population, page 49)
Coming on top of the projected 100,000 job cuts in the civil
service, the real intention of the Labour government is the final dismantling of
the post-second world war welfare state and handing over as much public-sector
provision to its friends in big business as is possible. Major obstacles in its
path to doing this, however, are the wages, entitlements and conditions of
public-sector workers – the most densely union-organised sector of the British
workforce.
Government scaremongering
NOW THE BLAIR government is outlining a long-term plan to
reduce the pension entitlement of these workers – in effect, a massive pay cut,
as workers view pensions as deferred wages. If they were to get away with such a
huge attack then this could end any effective role of the unions in representing
public-sector workers (a similar process has been seen in the private sector)
and would lead to further erosion of pay and conditions as public service
provision in Britain increasingly follows the US or Latin American road.
A closer look at projections of what is required to
guarantee a decent income in retirement for the vast majority of the population,
in comparison with the huge sums given to defence spending or subsidising big
business, immediately shows how much the government is scaremongering about the
figures in order to cut government spending further. One immediate aim is to
overcome Gordon Brown’s financial black hole that the government faces in the
years ahead.
But the fact is, even on a capitalist basis, we are very far
from a big pensions crisis in Britain in terms of the wealth available in
society. What is really at stake is the division of that wealth between the
capitalist class and the rest of us. Also behind the attacks is a desire of
British bosses (including the government) to return to pre-Victorian times in
pension provision, when they had a very limited responsibility for their retired
workers.
The bosses have burned their fingers with their
contributions holidays, which led to serious underfunding of some private-sector
pensions, especially when stock markets slumped after 2000, sharply cutting the
current value of pension-fund assets – up to £65 billion, according to The
Economist. Some are now being forced to make up the shortfall under pressure and
threats of action from their workforces. This has forced them to top up pension
funds and cut their share dividend which, in turn, has pushed the value of
company shares down.
In response, the bosses have sought to end defined benefit
final-salary schemes and move to defined contribution schemes, where the workers
know how much they will pay but do not know how much their pension will be worth
when they retire.
Even with current projected population growth and the fact
that there will be fewer in the working population compared to retired
dependants, the overall growth of the economy, even on the basis of the lowest
level of capitalist growth projections, should be able to guarantee the current
state pension provision and the current level of occupational pensions for
public-sector workers (as inadequate as they generally are) for decades to come.
(A major economic slump, however, or a period of prolonged economic depression,
would throw investment-based pension funds into deep crisis.)
But for successive British governments pension liabilities,
and those of the capitalist class, constitute a drain on their profits and the
subsidies they give to big business. Consequently, they have attacked the state
pension and retirement entitlements for a whole generation since the early 1980s
– when Thatcher removed the link between pensions and earnings. Britain now has
the lowest level of overall spending on pensions of any of the advanced
capitalist countries. In the UK on average workers get 37% of their working-life
earnings on retirement. But in the Netherlands workers get 70%, in Sweden 76%,
and in France 71%.
Figure it out
NOW THEY INTEND to go for what they perceive as the soft
underbelly of public-sector pensions to reduce state spending even further and
drive workers’ expectations and conditions still lower.
One estimate is that, even on the basis of the current
public-sector workforce, increasing the retirement age on a full pension by five
years, which the government intends to do across the board, will reduce the
government’s future pensions bill by at least £100 billion. This has been
calculated on the basis that if the average public-sector occupational pension
is £4,000 a year then each public-sector worker currently employed will lose
£20,000 on average. For over five million public-sector workers in total this
equals £100 billion.
This cut is before the other proposed government changes
kick in, such as increased contributions, reducing the government’s own
contributions as an employer and possibly changing to ‘career average’ pensions
rather than ‘final salary’ schemes. This figure, moreover, is a gross
underestimate of what the government hopes to save after 2013.
The New Labour government claims it can no longer afford to
fund public-sector pensions in the ‘unlimited’ way governments have in the past.
It claims that the total liability for its pensions bill amounts to over £500
billion – about half the UK’s gross domestic product (GDP). According to
consultants Watson Wyatt, the government’s liabilities are over £600 billion.
They say this is growing by £47 billion a year. However, some of this
astronomical sum comes from changes in accountancy practise, which also pushed
the liabilities of private-sector pensions up by similar amounts.
In some respects, the projections of pension liabilities for
companies or government are a pseudo-scientific form of educated guesswork –
where all sorts of factors from life expectancy to future stock market returns
and the number of people contributing to pension funds are guestimated. For
instance, in 1999, very few pension fund consultants foresaw the imminent
collapse in share prices, and overestimated future returns. At that time, some
of these consultants only gave a 1% chance of stocks and shares declining in the
years ahead.
Another reason why the public-sector pension liability has
increased in recent years is because the Labour government has taken on more
workers, thus increasing its total pension liability. However, Labour has been
forced to take on extra workers in the public sector after years of underfunding
by Tory and Labour governments brought major public services to the point of
collapse.
Inevitably, a bigger workforce means a bigger pension bill,
but a bigger workforce also means more workers contributing into pension funds
and National Insurance. The figure of unfunded liabilities also refers to the
total bill the government would have to meet if it had to effectively pay out
all its pension liabilities at once. But the government will never be called
upon to do this, and has to meet these liabilities over many decades rather than
all at once.
The true annual figure of how much the government has to pay
out of its current expenditure for unfunded public-sector pensions is a lot less
than the scaremongering headline figures quoted. It was actually only £12.6
billion in 1999, about 3% of government spending and less than 1.5% of GDP –
that would mean it is currently about £15 billion a year – just under half of
what the government pays out in debt repayment or defence expenditure.
Local government pension schemes, which pay out £14 billion
a year, are self-funded schemes and make no claim on government finances.
However, this has not stopped the government from including them in the current
raft of proposed changes. In total the government only spends 5% of GDP on
pensions. Yet, it is trying to claim that it cannot afford even the paltry
provision it offers at the moment in the form of the state pension.
A matter of life and death
CURRENTLY, THE 5% of GDP – about £50 billion – that the
government spends on state pension benefits includes the basic state pension,
SERPS – or SP2, the second state pension – the minimum income guarantee and the
winter fuel payment. On top of this, it pays about £15 billion a year for
occupational pensions of state employees – approximately 1.5% of GDP. This makes
a combined total of 6.5% of GDP spent on pensions by the state.
Other governments currently spend a higher proportion of GDP
on pensions. The average among European Union countries is 10% and in OECD
countries is 7.5%. (Pensions Policy Institute, Briefing Note, Number 3 July
2003)
However, the number of pensioners is projected to rise from
eleven million now to 17 million by 2050 – an increase of 40%. This may sound a
big increase to finance but the government plans to maintain the current state
pension benefit system, whose value is constantly declining relative to incomes,
to decrease what it pays out. And if the number of people in work and the
economy grow at the same level as in the last 40 years then this rise in the
pension age population will see the cost of providing state pension benefits
only rise from 5% to 5.7% of GDP.
At current levels of GDP this would mean about an extra £700
million a year being spent. When you consider that there is a £25 billion
surplus in the National Insurance fund – because state pensions have dropped so
much relative to earnings in the last 20 years, a trend which the government
hopes to continue – then the government could conceivably cover its extra costs
for up to 30 years before it hit a crisis level.
However, the government plans to keep the amount paid out
through state expenditure at the same level of 5% of GDP while the number of
people of state pension age or older is expected to increase by 40%. This is bad
news for those relying solely on a state pension. It means that by 2040 the
value of benefits paid per pension relative to the size of the economy,
according to the Pensions Policy Institute, will see each individual pensioner
receiving on average a 40% smaller share of GDP than pensioners do today. So, as
this trend continues, even by 2020 the basic state pension will be halved in
value – worth only 10% of average earnings (no more than £56 per week) compared
to the present 20%.
One aspect of its pensions policy the government does not
appear to have any plans to change is the huge amount it gives in subsidies to
private pensions in the form of tax concessions. Tax relief for private pensions
and those who have opted out of the second state pension are now the equivalent
of 2.5% of GDP. Half of that money goes to the richest 10% of taxpayers – with
the top 2.5% grabbing over a quarter.
If the tax relief for the richest taxpayers was abolished,
that would release at least £15 billion extra per year. If corporation tax was
increased to the levels it was 30 years ago – before the Thatcherite neo-liberal
counter-revolution began – then that would add another £3.5 billion to the
Treasury funds each year that could be made available for pensions. Add in state
expenditure on defence – over £27 billion a year – and debt interest repayment –
over £24 billion a year – and throw in the £25 billion National Insurance fund
surplus, then the government would have more than adequate money to cover
pension liabilities and considerably raise the state pension at the very least.
Ironically, it is the poorest in society who make the least
claim on their pension entitlement. A report from the Faculty and Institute of
Actuaries in January 2005 showed that the size of someone’s pension can
determine their life expectancy. According to its report, people on pensions of
less than £4,500 a year are likely to die earlier than those with a pension of
more than £13,000 a year. Now both the bosses and the government are prepared to
send more workers to an early grave by cutting pension entitlements even
further.
For many workers, the need to resist the attacks on pensions
will clearly be a matter of life and death – and even in the best cases workers
will have to work longer for less reward, both whilst in work and in retirement.
Mass united action
A SOCIALIST PENSIONS policy would use the money available
from the rich and big business – as part of a socialist planned economy – to
allow workers to start drawing a decent state pension at 55. Those who want to
continue work after that age should be able to do so. There should also be the
allowance for workers to work part time, drawing part of their pension to bridge
the gap between work and retirement for those who want it.
Given the paltry level of the state pension, all pensioners
should receive an immediate 50% increase, with the link between pensions and
earnings being restored. In addition, pensioners, having contributed to society
all their lives, should be entitled to free housing, heating, telephone and
travel. These measures would cost around £15 billion a year. Again, compare this
to the £27 billion a year New Labour currently spends on so-called defence or
the £25 billion surplus built up from National Insurance contributions.
Even on a capitalist basis, whether or nor workers get a
half-decent pension depends on the bosses and the government being forced to
change their priorities under pressure from the organised working class. The
occupational pensions and state pensions that were won in the past came about
through workers’ struggles against the inequalities of the capitalist system and
the fear of the bosses of social uprising from below – especially after the
first and second world wars. But, as always under capitalism, whatever is won
through struggle has to be defended, and the workers’ movement in Britain is at
a crucial turning point over pensions.
The direction the employers and the government want to go in
is clear. They want to make us work until we drop. Their plans must be defeated
through mass, united action. British public-sector unions have threatened strike
action to stop the raising of the retirement age by five years across the public
sector. Even if the government were to retreat temporarily in the face of over a
million workers joined in united strike action, it is clear that they and the
bosses will come back for more.
Given the organic, long-term crisis of British capitalism,
the bosses and government will attempt every possible short-term expedient they
can to try and increase the profitability of British business – without
investing or developing its manufacturing base – and to reduce state
expenditure.
In the 1920s, the coal owners and the government of the day
– pushed by the growing crisis, especially in coal production, the major
industry of that time – tried to cut miners’ wages. Threats of industrial action
in 1925 forced a retreat in the form of government subsidies, and setting up the
Samuel Commission to look into miners’ wages and conditions. It eventually
reported and confirmed the wage cut, leading to the general strike of 1926 in
which the trade union leaders – right and left – capitulated to the bosses’
demands and abandoned the miners.
A certain parallel exists between then and now, though not
completely analogous. The Turner Commission claims that in the long run the
British economy can no longer afford its current level of pension provision.
Whatever the short-term manoeuvres of the government in the run-up to the
election, it is inevitable that a big battle is looming over pensions in
Britain.
So far, the unions have under pressure adopted a more
militant approach – particularly through the crucial role of Socialist Party
members in unions like UNISON, the PCS civil servants union, and others. But
many workers in Britain will want their union leaders to follow the even more
militant example shown by workers in France and the rest of Europe to ensure
that a decisive victory is won for all working-class people in this country.
The Great Pensions Robbery
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