With our retirements under attack from employers and governments, we have to make the demand for the complete transformation to a system of state pensions in conjunction with a thoroughgoing restructure of Britain – for an industrial revolution…
Along with pension deficits that have been deliberately overblown, reductions in inflation protection and false concerns over longevity, comes the proposed introduction of the National Employment Savings Trust (NEST).
NEST is a state-sponsored personal pension scheme that was planned by the Labour Government in 2007. It has since been adopted by the Coalition and is set to start from 2012.
Pensions commentators have described NEST as “well-meaning in its aim to provide work-based pensions for low earners” but flawed inasmuch as it will result in the “unintended outcome” of further encouraging employers to close quality occupational pension schemes.
In fact there is nothing surprising about NEST. The whole thing has been previously designed by the World Bank as a template that governments can use to destroy their state and occupational pension provision.
The design was first applied to South American countries during the 1990s (for example it was called Pension Asistencial in Chile). It was then introduced to second-string EU countries such as Hungary from 1997 onwards.
In fact the Labour Government first considered NEST in 1997. But it fudged the attempt by instead introducing stakeholder pensions – only to revisit the idea again in 2007. Now in 2011 the Coalition view is that one of the beneficial outcomes of Britain’s capitalist slump is that meaningful pension plans can be removed – a view wholeheartedly endorsed by employers.
So disarming comments regarding the “unforeseen consequences” of NEST that will appear in the press from the usual bunch of tame commentators should simply be ignored. Make no mistake: the destructive intent of NEST is fully understood by the Coalition.
The hope is that it will be much easier for employers to end their own pension plans during the launch of NEST – undoubtedly accompanied by a blaze of government publicity on the new pensions deal that will provide only a tiny fraction of the pension produced levels under the final salary schemes they want to close.
As previously outlined in Workers, the role of the World Bank in pensions busting has been studied by the economists Paul and Paul, and their findings have been published in the International Journal of Health Services.
The design, as further refined by the EU, is to first push the lie that past pension levels are a luxury, at the same time as producing a flawed analysis of pension inefficiencies and inequities.
This is known as the “conditionality approach”, where for example complaints are voiced that the current pension system does not take adequate care of the most socially vulnerable and that it is divisive.
What then follows under the veil of equality is what is called “massification of privilege”. The argument here is that what is financially viable for a minority cannot work in the long run for the mass of the insured.
Needless to say, the outcome under the replacement arrangements, using the all-too-familiar concept of a “safety net”, is that pensioners become far worse off and receive barely enough to keep them from starving to death.
There are many examples of this approach that can be gathered from the day-to-day pension announcements from the Coalition and its supporters (they all go to the same seminars). But a clear recent example of the World Bank/EU template is Michael Johnson’s report from the Centre for Policy Studies, published in February 2011.
Well-rehearsed “worries” are aired in this report such as “disproportionately high pensions paid to high earners”, “looming generational inequality [that] manifests itself as a rising tax burden on today’s workers”, along with proposals “to help protect lower earners”.
Johnson’s report concludes that public sector workers must be weaned off their “gold-plated final salary pensions” to avert a “fiscal calamity”. More of the same came from Lord Hutton when he presented his delayed “pensions review” in March.
Of course Britain’s industrial history is unique and our pensions system although under attack can still be turned around through coherent trade union actions. No other government elsewhere has attempted what is proposed for Britain. Where other governments such as Chile, Hungary or Australia have introduced schemes similar to NEST it has been done without a significant occupational pension sector (though some public sector workers have stopped paying into their final salary schemes already).
Compare this to Britain, where the occupational wealth, created by past and present generations of British workers, has been put aside into collectively based funds to pay present and future pensions.
In terms of value, these funds are the equivalent of well over 80 per cent of Britain’s annual Gross Domestic Product (GDP). In Germany and France, by comparison – even though they have higher state pensions – occupational pension funding represents only 16 and 7 per cent of their respective GDPs.
That we in Britain have a massive collective fund of approximately £1,400 billion is a worry to our enemies. For example, the Centre for Policy Studies as far back as 1986 described our collective funds as “a cryptic form of socialism, masquerading as benevolent paternalism”.
Instead in 1986 the government brought in the Financial Services Act, pushing personal pension plans and encouraging naïve workers to opt out of final salary pension contributions by making membership no longer a part of the contract of employment.
Now look at the disastrous consequences in 2011. The problem has been that many private sector workers have allowed their company schemes to be broken. Many only ever saw pensions as part of a grace and favour offering from the employer, rather than understanding that final salary pensions were the result of hard-fought trade union actions that were by and large conducted in the public sector.
But simply retaining the pensions system as it stands is not enough. We need something better. Although more investigative work needs to be done and levels of awareness need to be raised, the primary question around the ability to pay better pensions rests on the basis of being able to generate economic growth.
Better pensions will require a change in the political philosophy.
Governments and employers have always opposed the replacement of pre-funded occupational funds by what is known as a “pay as you go” state pension. The reason: our pension funding is considered a useful source of capital, to be used either for City speculation or to buy government debt (gilts).
Feeding the banks
Funding and using capital this way cannot generate wealth – but it does take capital out of the hands of the working class and feed it into the hands of the investment banks and governments.
The idea that all pensions should be prefunded, rather than relying on one’s pension being paid from the wealth generated from the next generation, can seem superficially attractive to those worried about “sound finance”. Yet this outlook is really only another example of the type of naïve “nest egg” thinking that has been exploited by successive governments and flunkies.
The reality is that the actual cost of pensions only arises when they are paid out, irrespective of whether they have been funded for or not. The working population can easily provide for its dependants out of the wealth created each year without having to first build a fund – annual pension payments can simply be made as an agreed deduction from annual wealth.
A move to a “pay-as you-go” method would represent a massive leap that would allow us to free up the £1,400 billion held in our collective pre-funded occupational pensions and apply this to our labour power to generate the necessary wealth that Britain needs.
Such a step, though, will require us to hold out against the government strategy of using our past pension funding either to cover government debt or to continue to make our capital available for useless speculation.
The beginnings of rejecting this process are already occurring, and the government is getting worried.
For example a pensions consortium including the BT Pension Plan and the Public Sector Pension Investment Board was prevented from buying the London rail link to the Channel Tunnel in November 2010. Instead the bid went to two Canadian pension funds one of which was the Ontario Teachers Pension Plan. This was despite the British pension funds making the higher bid, more than the £2.1 billion offered by the Canadians.
An appeal has now been lodged but a Treasury spokesman has said that “we are sure that the sale was conducted in a fair manner which secured the best deal for the taxpayer”.
What is not being admitted is that the government is frightened that British pension funds (our capital) are seen to be used for socially useful profitable infrastructure and capital re-tooling projects – because this would begin to set workers’ minds towards a future without capitalism. To prevent such thoughts the Coalition would prefer to facilitate the foreign ownership of our resources.