Issue 216 of SOCIALIST REVIEW Published February 1998 Copyright Socialist Review

Feature article: War on welfare

Pensions

Hugh Lowe

There has been a debate among active pensioners for years as to whether a Labour (or any other) government would meet the demands on the pensioners' shopping list. Those who thought it would are on a very steep learning curve.

Campaigning activity by retired trade unionists has increased but the next generations of pensioners have not yet been drawn in to the struggle. Their intervention is essential if anything serious is to be done.

If the pensions question is to be seriously addressed activists must understand how the British pensions system - which is unique in Europe (and uniquely awful for the working class) - works.

Pensions almost worldwide are paid from contributions by employers and workers. This applies across the European Union, including Britain, not only to the British state pension but also to 'pay as you go' (PAYG) social insurance type pensions (the norm in most EU countries), occupational pensions and even personal pensions - the latter two categories being more or less peculiar to Britain within the EU.

The British system contrives to make employers' social contributions to pensions the lowest in the EU (see diagram) and supports a parasitic financial services 'industry' to boot - which is why British pensioners are so poor.

The fact that pensions are paid out of contributions by employers and workers makes pensions a basic class issue - that is, how much does each class pay?

Short of a socialist revolution only a big increase in employers' contributions to National Insurance plus curbing, or abolishing, private pension funds offers any hope of a way out of pensioners' poverty.

The figures show very clearly that UK employers' social contributions costs are, relative to wages, much lower in Britain than in other EU countries.

In pay as you go systems money is taken from current contributors and paid directly to current pensioners on a cash flow basis. No invested funds are involved and hence are not there to be administered or ripped off. So no hordes of accountants, fund managers or City fat cats are required. PAYG systems are transparent and cheap to run. The British state pension costs only 65p per week per claimant to administer.

Most continental pension systems are PAYG. But contributions and pension levels are usually negotiated between unions and employers on a sectoral or national basis, as though the TUC negotiated with the CBI. Pensions and pension contributions are thus part of normal negotiation procedure and this has aided trade unions in Italy, France and Germany, to call action in defence of pensions.

In Britain funded occupational pensions became the norm. They suffered from the defect that they divided the workforce and workers lost out heavily from job changing, periods outside the workforce etc.

As most occupational pensions were negotiated on a firm by firm basis they favoured the well organised, ie mostly male, white collar and skilled workers. They have been particularly bad for women. In 1994 only about a third of all women over 65 had an occupational pension, with a median value of 26 a week, against two thirds of men with a median value of 46 a week.

To improve on the patchy provision of occupational pensions Serps was introduced in 1975 but is now dying the death of a thousand cuts and the government clearly intends to abolish it.

This hotch-potch of pension provision, assisted by the obscure workings of funded occupational and personal pensions, has allowed British employers to get away with a uniquely low level of pension contributions. Most of the low level of social spending in Britain, which is some 8 percent of GDP less than in the major EU economies, is accounted for by this fact. It is not often appreciated that this represents a long term defeat for the whole British working class.

In funded pension schemes (occupational and personal) stocks and shares are bought with the contributions and pensions are paid from the interest on the investments. Only Britain in the EU goes in for funded pensions in a big way and the correspondence between this and the poverty of British pensioners is no accident (see diagram).

There are continuing ripoffs by the City and employers of the 'workers' pension funds' too numerous to list. Apart from scandals, like Maxwell, thousands of employers, including the government, are using the excuse of 'actuarial surpluses' to take extensive contribution holidays, finance redundancy packages and milk the pension funds in takeovers.

Personal pensions have dredged new depths in funded pensions. They are sold on a one to one basis by insurance companies to individuals, so employers' contributions are often zero and, as they are personal, controls are even weaker than for occupational schemes.

So infamous had personal pensions become that even a Tory government had to make a show of compelling the pensions industry to pay compensation for their worst misdeeds. The Blair government continues with the 'slap on the wrist' show instead of using some real sanctions such as sequestering the guilty companies' funds.

'Stakeholder pensions' is a rather vague term which appears to cover almost any sort of private funded pension. They are being pushed by the government with the connivance of the TUC as a 'second tier' of (poor value) funded pensions, possibly to be made compulsory - a further boost to the City.

Pension funds own nearly half of all UK stocks and shares and their managers control the ethos of the City with its 'short termism' and lack of interest in industry. Hence any attack on funded pensions, and particularly a call for their replacement by proper PAYG pensions, is also an attack on the City.

Other governments in the EU have been attempting to introduce funded pension systems on the British model for ten years or more but have been baulked by the determined resistance of the unions.

In the long run employers' contributions to National Insurance, presently 10 percent of wages, should be increased to at least match the EU average. That is - doubled. The pensioners' movement has taken the principled position that increasing the basic flat rate state pension (plus Serps) is its number one priority. Since Thatcher ended indexation of pensions to the higher of either prices or earnings in 1980 the state pension has lost some 27 a week per pensioner at current prices. Pensioners are demanding, as a minimum, that this cut is restored and that the state pension is henceforth indexed to the higher of prices or earnings. All trade unions and the TUC have conference resolutions in support of this position (the Pensioner's Charter) but it is a paper policy only. There is no campaign to back it up.

The TUC is devoting considerable resources to promoting occupational and stakeholder pensions and doing nothing about the campaign for a better state pension and Serps. Only determined action throughout the unions will bring the bureaucrats to account and force the TUC to change its ways. This needs to be done urgently before we are led further into the quagmire.


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