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Pensions crisis: Bosses' Poverty Plans For Retired Workers
"IF PEOPLE want a comfortable retirement they will have to work longer, save more, or a combination of both," says National Association of Pension Funds spokesperson Andy Fleming.
Collapsing share prices have cost UK pension funds £96 billion, according to UBS Global Asset Management, as the FTSE All-Share Index has fallen 29% since the beginning of the year.
It was widely assumed in the 1960s and 1970s that leisure time would steadily increase so workers could retire earlier with a pension that would meet their needs. Instead, British workers work the longest hours in Europe and there are proposals to raise the retirement age to 67.
Can capitalism provide for the future? Will today's workers be better off than yesterday's? What future can their children expect?
KEN DOUGLAS reports on the pensions crisis which is blighting capitalism in the advanced industrial countries and outlines what the socialist solution is.
PLUMMETING STOCK markets are hitting the private pension companies which have based their projected pension benefits on these markets' performance.
They have exposed individual companies which had raided their pension schemes and suspended payment of contributions in the past. There is a £3 billion shortfall at BT, £600 million at Marks and Spencer and £850 million at Rolls Royce. Inland Revenue figures show that in the 12 years to 2000, employers saved around £19 billion through 'contribution holidays'.
Companies are now desperately trying to limit their pension schemes. A survey of 3,000 companies by the Association of Consulting Actuaries (ACA) found that half of all remaining 'final salary' schemes are expected to be closed to new staff. Frozen food retailer Iceland is getting rid of its final salary scheme for existing employees as well as new ones.
There are huge amounts to be saved. The employer's contribution to a money purchase scheme is 6% compared to 15.4% to a final salary scheme. However, a typical 'money purchase' scheme will generate a pension around 40% lower than a final salary scheme.
Calls to the government to do something about fat cats' pensions are likely to fall on deaf ears however, seeing the deal MPs are getting, which raises the maximum payable to £36,745 after 27 years service (see letter opposite).
New Labour commissioned a report from Alan Pickering, former chairman of the National Association of Pension Funds. He recommends abolishing the link with inflation, ending the obligation to pay benefits to pensioners' widows and reducing regulations.
IT'S BEEN dubbed a "demographic time-bomb". In 1951 the average 60-year-old could expect to live into their mid-seventies; by 2030 it will be 82. In addition the proportion of the population over 60 in the richer capitalist countries is growing compared to those of working age.
Faced with a similar crisis, Germany's labour minister Walter Riester tried to deal with the pension gap by introducing a state-subsidised private retirement account. Germans can now put up to 4% of their pay packet (directly or via their employer) into a private pension that attracts tax breaks and subsidies.
After a year on the market and a torrent of advertising by insurance companies and banks hoping to cash in on a hot new product, barely two million of the 30-35 million eligible adults have taken out a private pension.
A survey this June showed that most of those eligible thought that they need not worry about their retirement. 50% said they had made adequate provision and 72% said they didn't intend to sign up for an individual Riester policy.
A similar effect has been seen in Britain, where the government introduced the stakeholder pension. Only about 670,000 have been sold.
The government have to tread carefully in deregulating and privatising pensions. A recent poll of Amicus trade union members gave overwhelming support for strike action to save final salary pension schemes. Almost 90% of union representatives said they would strike if the employer tried to close down the scheme or reduce its contributions.
Workers at two plants owned by steel company Caparo threatened strike action and an overtime ban in June to protect their pension scheme.
Declining state pension
AT THE same time the state pension has steadily declined in value. It's worth about 15% of average male wages, after the Tories removed the link between pensions and pay. A recent Age Concern study, Low Cost but acceptable incomes for older people (LCA), showed the state pension was now completely inadequate.
An assessment of pensioner needs and living costs using 12 'focus groups' across the country, it found that pensioners needed incomes ranging from £99 to £184 for a couple living in a rented property to enable them to avoid poverty.
For those not entitled to income support the gap between the basic pension and the LCA standard ranged from £31 to £80 per week.
Now there are calls to raise the pension age; the Institute for Public Policy Research has proposed 67 and the National Association of Pension Funds, 70. Once the state pension age is raised then company pension schemes will follow.
In 1909 the state pension age was 70, this was reduced to 65 for men in 1925. It would be an enormous step backward for working-class people for the retirement age to be raised again.
New Labour face an intractable problem. Capitalism cannot deliver the growth needed to pay today's pensioners, let alone tomorrow's. The world economic crisis is likely to be prolonged and pension companies may go bankrupt in the next few years if they cannot maintain their funds and meet their liabilities.
If the bosses attack workers' pension rights they could provoke industrial action. The ousting of right-wing trade union leaders like Ken Jackson of Amicus shows that workers want leaders who will fight to defend their terms and conditions.
Workers need a new party that will put forward a socialist programme and fight to achieve a socialist society. Labour or a future government may be forced to nationalise the banks and pension companies. By itself, however, on a capitalist basis this would only be a temporary measure.
Billions are still invested in Britain's pension funds. If workers and pensioners, not capitalists eager for a quick buck, controlled that money, a huge sum could be put to productive use and to provide jobs for all. The government's tax income would rise and real wealth created to provide a decent state pension for us all.
The Socialist calls for:
- An immediate increase of £50 a week in the state pension as a step towards a living pension - with annual increases in line with average earnings or price rises, whichever is greater.
- No increase in the retirement age.
- No more gambling with our futures. Nationalise the banks and pension companies under the democratic control and management of working-class people.
- Pensioners should also receive free services, including care services, gas, electricity and telephone, rent-free accommodation and free travel.
A Guide Through The Pensions Minefield
TO ENSURE an income in retirement, workers must save throughout their working life. The level of income depends on how much they save and the interest earned on those savings.
A pension company generally invests the savings in the stock markets and government bonds and securities. On retirement the fund is used to buy an annuity which gives an annual income.
The pension therefore depends on the level of wages (which affects the amount that can be saved), the stock market's performance over 25 years, the rate of the annuity on retirement and the pension company's competence and honesty. Two individuals paying the same premium could have as much as a 50% difference in how much pension they receive.
According to Will Hutton in The State We're In if you assume that earnings rise by 3% and the stock market rises by 8.5% then £2,080 would have to be saved every year to get a decent pension. Given 12 million pensioners in 25 years' time then cumulative funds at today's prices would be £1,200 billion, or three times what they would be worth today.
Final salary schemes are generally company pension schemes which pay a guaranteed percentage of your final salary. The employee pays a fixed percentage of their salary into the company pension scheme, as does the employer.
The average employer contribution at present is 15.4%. The minimum employee's contribution needed to equal the benefits from a final salary scheme would be 18%-20% of their salary every year.
Money purchase schemes match the worker's contribution with an equal one from the employer; i.e. if the employee puts in 4% then the employer puts in 4%. The fund is then invested on the stock market. Values of these schemes are typically 40% lower than final salary schemes.
The state pension is a benefit dependant on a minimum number of national insurance contributions or credits payable over the working life.
State earnings related pension (SERPS), were introduced by the government in 1978 to provide a second pension to those without company pension schemes. Based on earnings and national insurance contributions it would be, at most, 20% of a worker's average earnings.
Stakeholder pensions, introduced by Gordon Brown in 2001 were intended as an alternative to personal pensions for those earning between £10,000 and £20,000 per year without access to company pension schemes.
"Opting out" was where unscrupulous sales representatives persuaded people to opt out of occupational pension schemes with guaranteed pensions related to final salary and with contributions from their employers.
Instead, they bought pensions dependent solely on the stock market's performance and the size of their own contributions. Up to half a million people were mis-sold pensions. Some of the industry's biggest companies were involved, such as Norwich Union and Legal and General.
Strike Back At Big Business Pension Holidays
REDUNDANT STEEL workers at Cardiff's Allied Steel and Wire (ASW) plant face having their pensions dramatically cut after big falls on the stock market.
Clive Dunkley, Socialist Party Wales
Some workers at ASW have paid into the company pension scheme for over 30 years - this cut represents the bosses stealing the unpaid wages of the workers. 1,200 employees are to lose their jobs when the site closes, they had thought their pensions were safe but this latest move just adds insult to injury.
The capitalists always make the working class pay for their mistakes on the giant roulette wheel they call the stock exchange. This type of action amounts to theft, workers in all sectors need to take action to secure their pensions.
Workers at Caparo plants in Tredegar and Scunthorpe, members of the ISTC union, have already taken strike action to defend their final salary pensions schemes which their company are attempting to end.
The trade union movement needs a campaign of industrial action, in both the private and public sector, to send a clear message to Blair and the bosses that we won't pay for the failure of the system which they worship.
Companies who have taken "pension holidays" should be forced to pay back all the money lost through this blatant abuse of their position in the pension arrangement between workers and bosses.
Workers' pensions should be controlled by the workers themselves, after all it's our money! These measures would go some way to securing pensions for the likes of the ASW workers in Cardiff.
MPs Look After Number One
THE GOVERNMENT has again shown its absolute contempt for the electorate. The bosses want to scrap the link to wages of the pensions of ordinary workers, linking them instead to the volatile stock market - which has lost £873,360 million since December 1999.
Mary Jackson, Doncaster
Millions of workers will be forced to exist on reduced pensions after working and contributing for the majority of their working lives.
MPs, on the other hand, have just approved new rules which mean they will receive a fortieth of their present salary for every year they are in the House of Commons. So for a five-year term they will get a pension of £120 - £170 per week; £240 for ten years and £480 for 20 years.
Compare this to an ordinary worker's state pension of £75.50 per week (£120 for a couple).
It's scandalous! Workers can only dream of receiving an MP's pay of £1,060 per week and are unable to save enough to ensure an adequate private pension. However, we are still expected to subsidise their pensions from our taxes.
One Law For The Rich...
NOT EVERYONE'S suffering. Only 44% of FTSE 100 companies have final salary schemes for staff, but this leaps to 76% for directors. BT chief executive John Condon, who closed his company final salary scheme to new employees, has added two and a half years to his own pension, netting him £146,000 per year plus a lump sum of £439,000
More than 250 bosses in the FTSE-100 are giving themselves huge pension settlements. Most notably GlaxoSmithKline boss Jean-Pierre Garnier (above) has built up an entitlement of at least £833,000 a year when he retires. Other top directors will each receive pensions of over £500,000 a year.
In The Socialist 9 August 2002: