Pensions: assault on the working class

The massive state transfer of funds to save western banks means that ruling classes in the imperialist states are attacking pensions in order to thrust the burden of the crisis onto the working class. On 10 March, the ConDem coalition announced the extension of the average working life by raising the retirement age. This change takes place on top of a massive assault on day-to-day working conditions and living standards. James Martin reports.

As long as they can get away with it, the ruling class will abandon retired workers to their own fate, including those better-off workers who have been employed in the state sector. British imperialism is in crisis, and it can no longer agree to what are insultingly called ‘gold-plated’ pensions by the bourgeois media.

At present there are 12.2 million pensioners in the UK, of whom 7.6 million are women and 4.6 million men. One in three future pensioners will not have sufficient income to avoid poverty when they retire. In 2007-8, 2.5 million pensioners were living below the official poverty line and 600,000 pensioners were living in severe poverty. About two thirds of those pensioners living in poverty are women. Although the proportion of pensioners living in low-income households fell from 29% of all pensioners in 1998/99 to 17% today, workers can expect to retire on only 41.5% of average earnings, compared to 68.8% across the OECD.* The average local government pensions are only £4,000 pa for men and £2,800 pa for women. For capitalism however these pensions are wasteful payments to the economically inactive.

Public sector pension schemes

Paying public sector pensions will cost the state £30bn in 2011/12. These schemes are unfunded, and so employed workers pay them through their current taxation. Now the ruling class wants these payments for its own needs, so public employees and all unfunded statutory pensions are targets of the ruling class. Prime Minister Cameron rattled his sabre in Cardiff on 8 March, where he declared that local and central government employees were ‘enemies of enterprise’, running ‘mad’ bureaucracies ‘loading costs on to business’ which ‘frankly they cannot take any more’.

George Osborne’s ‘fiscal austerity plan’, set out in June 2010, attacked state employment costs with a two-year pay freeze, job losses and pension reform. At the end of 2010 there were 6.2 million public sector workers, a quarter of all employees (excluding the self-employed), and 5.4 million of them have Defined Benefit (DB) pension plans compared to 2.4 million private sector workers. But switching workers immediately to Defined Contribution (DC) schemes, in which workers build up retirement savings in risky stock market funds, would cost the government a lot of money in the short term. So the best way to cut costs now is to retain unfunded DB schemes but at a reduced level.

In October 2010, Lord John Hutton, a former Blairite Labour Minister for Business, Work and Pensions, and a member of Barrow’s Cemetery [sic] Cottages Working Men’s Club, heading a commission on public sector pension ‘reform’, issued an interim report. This proposed:

• raising employee contribution rates (excluding the armed forces);

• replacing final salary with average lifetime earnings as the basis of pensions calculation;

• raising the retirement age to 65 for everyone in the public sector.

From this year there is no longer a default age for retirement so that workers will be ‘free’ to exhaust themselves working without age restriction. Now the retirement age will rise to 66 for all male workers by 2020. Women’s pensionable age rises from 60 to 65 between April 2010 and November 2018, then to 66 by 2024. Police, armed forces and fire services are now to retire no earlier than 60. The last Labour government planned to raise the retirement age to 68 by 2046. The model evidently being used is the first Old Age Pensions Act of 1908, which provided a means-tested weekly sum to males over 70.

So, in October 2010, Chancellor Osborne raised contribution rates by an average of three percentage points, to start from April 2011. This will raise £1.8bn and cut government spending without raising benefits. In effect, the higher pension age is a return to the 1980s, when public-sector pensioners could expect to be retired for 30% of their adult lives rather than the present 40%. Hutton’s final report in March 2011 pressed on: all those in public sector final salary DB schemes will be moved ‘as soon as practical’ to a proportion of average career income; a reduction for everyone. This has already been the case since 2007 for the Principal Civil Service Superannuation Scheme, so the ground is well established.

Private sector pensions

At the end of 2010, private sector employment was 23 million. Nine million private sector workers have no occupational pension at all and will rely on the basic state pension.

The currently guaranteed minimum is £132.60 for a single person. A basic £140 is now proposed, to be introduced at some unspecified point in the future. From April 2011, the state pension will be tied to the Consumer Price Index instead of the Retail Price Index, forcing the elderly to accept depreciating pensions in Hutton’s ‘new landscape’. With inflation at its current rate this will mean at least a 20% lower payout to pensioners over 20 years.

Capitalism’s long-run decline in rates of profit, stock market yields and interest on loans has already forced many private employers to close final salary company schemes at a record rate: only 21% of private sector schemes are open to new entrants compared to 88% ten years ago. Now only a third of privately employed workers are in DB schemes compared to 85% of public sector workers; the majority belong to the inferior DC plans. The January 2011 Pension Bill proposed pension reform for small companies, and businesses must automatically enrol all those eligible employees who are not covered by company alternatives into a private sector pension scheme – a Personal Account – by 2016. The government will keep an eye on matters by providing an equivalent of 1% of businesses’ variable capital, its wage bill, to this Account; a further boost to the private pension corporations.

The British government puts far less aside for future pensioners than most rich countries. The pension system since 1908 has been based on the capacity of British imperialism to rake in super profits from around the globe. The current crisis saw overall investment in equities fall 25% between 2005 and 2010, while investment in index-linked gilts rose from 7.9% in 2009 to 12.3% of overall investment in 2010. This means that the government is trapped as pension funds move from equities to gilts and the state increasingly has to pay for private pensions too! For the state, the only answer is to force down the living standards of the working class as a whole. Our only answer is get rid of capitalism.

* OECD Pensions at a Glance 2011.

Fight Racism! Fight Imperialism! 220 April/May 2011


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