Issue 262 of SOCIALIST REVIEW Published April 2002 Copyright © Socialist Review
Is your pension at risk? Yes, minister says The Walrus
You would either need to have a very short memory or a tremendously blinkered New Labour kind of mindset to regard the latest crisis in the pensions industry as not worth getting all that worked up about. When a whole series of the biggest firms in the country suddenly announce that they are pulling out of 'final salary' pension schemes--because they claim they can no longer afford the payouts--and the top man at the National Association of Pension Funds starts talking about people having to work on to the age of 72, some of us might start to get a bit nervous.
But none of this seems to faze the minister supposedly in charge of work and pensions, Alistair Darling, whose main contribution so far has been the blinding insight that 'over the next 50 years stock markets will go up and down, and you don't change your policy every time there are headlines'.
Not everyone's response has been quite so obtuse. In a blistering attack on the firms pulling out of final salary schemes, Michael Skapinker of the Financial Times warned bosses that 'fiddling with people's pensions' has come to top the list of 'contemptible corporate misdeeds', noting that 'old age can be a tremulous time, particularly in countries like the US and UK where the state does little to care for the elderly'.
And there's a bit more to it than the simple assertion that this is all because shares have taken a dive since the dot.com fiasco hit the stock markets. Pensions seem to have established a bit of a habit of disappearing in recent years, starting with the spectacular hole which Robert Maxwell managed to scoop in the Daily Mirror pension fund. More recently we had Enron, where virtually the entire workforce were forced to look on helplessly as their life savings disappeared down the plughole.
The real reason Alistair Darling would rather we don't get too worked up about pensions is that--as with so much else--New Labour is not only caught between two stools but seems constitutionally incapable of making a decision on the right way to jump. The unravelling of more than 20 years of pure sophistry over pensions is quite probably the most spectacular illustration in recent years of the failure of Private Finance Initiatives.
But, just as with the London Underground, hell would more than likely freeze over before you would find Darling or Blair admitting to it, let alone contemplating the possibility of bringing back a properly funded state pension.
Like so many other aspects of welfare provision, the underlying problem with pensions all along has been that the state pension introduced after the war was systematically underfunded and eroded over the next 20 years or so.
By the early 1970s the value of the state pension had dwindled to such an extent that the pensions industry moved to wage a sustained--and ultimately highly successful--campaign convincing workers to top up the increasingly miserly state provision with additional personal contributions. Initial concerns were won round with the promise that for every pound they put into company pension schemes the firm would add an equal amount, and there would be some tax breaks.
The take-up on schemes of this kind (which usually involved opting out of the state-funded earnings related, or Serps, scheme) became particularly commonplace in manual occupations and parts of the private sector where no additional provision had previously existed. And it was not long before these funds had so much money in them that leading pension funds were quick to advise companies (but not the workers) to take a 'pensions holiday'.
Pension funds became the primary source of private finance for City institutions. One of the main aims of privatisation, indeed, was to open up access to the huge pension funds accumulated by nationalised industries like British Coal, British Rail, the CEGB and National Express. The size of these funds was so enormous that, on one estimate, miners' and railway workers' pension funds between them provided up to 40 percent of the total capital flow of some City institutions.
Needless to say, very little of this cash has gone into improvements to retirement payouts for workers whose 'deferred wages' swelled the coffers of the pension funds. Instead pensions money was largely responsible for the 'Big Bang' in City investments in the 1980s. At the same time we have seen an incredible upsurge in the swanky salaries and benefits paid to top pensions 'advisers'. Take Peter Foster, the former finance director of CGNU who retired last month--at the age of 54--with a lump sum of £633,333 plus a bonus of £63,333 to 'go away', and an immediate pension 'on a non-discounted basis' worth a further £1.07 million. Even the Daily Telegraph noted sourly that he, for one, 'is unlikely to be a burden on the state'.
Meanwhile, though, the results of the latest and most comprehensive survey on the extent and nature of private pension provision in Britain show that the number of organisations making some form of private pension provision had actually declined between 1998 and 2000, from 34 percent to 29 percent. This is embarassing enough for the government, not least because the research was carried out by Alistair Darling's very own Department of Work and Pensions.
But it is not half as damaging as the recent announcement by the biggest companies in the pensions industry--among them Legal & General, Prudential, Standard Life and Equitable Life--recommending that millions of people with private pensions might be better off opting back in to the new 'state second pension' which comes into effect this month. The claim is that this is all to do with people living longer, but it is actually down to fears of a sustained downturn in the market and the transfer of risk back to the public sector--and sharpish.
In effect, such a spectacular admission of failure by the private sector is the ultimate humiliation for New Labour. Only very recently Darling announced his intention to see 60 percent of pensions handled privately in the not too distant future, with only 40 percent taken care of by the state, and this has been the entire thrust of government policy since 1997. At the moment the proportion is the other way round and--like all the rest of the government's PFI initiatives--the entire strategy has been thrown into total disarray by the very people who are supposed to be coughing up the funds.