Public sector workers should pay more and retire later on smaller pensions, according to former New Labour minister Lord Hutton. His proposals form part of the continuing pensions rip-off by both the state and the private sector that condemns millions to hardship in older age.
Measures already taken by the previous government and the coalition since June will reduce the value of future pension pay-outs by 25%. Now Hutton, the former Labour work and pensions secretary, has branded public sector pensions schemes "unfair and unsustainable".
Yet, as Hutton’s interim report commissioned by the Lib-Con coalition acknowledges, the average public pension is £7,800 a year. It’s hardly a king’s ransom and peanuts compared to corporate payouts such as the £650,000 a year to Fred Goodwin, the former RBS boss in charge when his bank collapsed into the arms of the state.
Although the economy is in recession, directors of the UK's top companies have amassed pensions pots worth an average of £3.8 million, according to a recent TUC survey. It shows that the average transfer value for a director's pension is £3.8 million, an increase of £400,000 since last year, providing an average annual pension of £227,726. The average director's pension is 26 times the average occupational pension.
Meanwhile, actual workers enrolled in many private pension schemes – a number of which have collapsed in recent years – are losing up to 80% of contributions in fees and commissions, BBC Panorama revealed this week.
In one HSBC pension plan, £120,000 paid in over 40 years would result in fees and commissions totalling £99,900. The Co-Op Individual Personal Pension would take out nearly £96,000 in fees across 40 years of investment growth upon deposits of £120,000. Legal and General's Co-funds Portfolio Pension would take out about £61,000.
Despite what Hutton says, what is really unsustainable is a profit-driven economic and financial system that robs workers and pensioners on a daily basis and then invests time and resources working out how to wreck existing schemes. It is not, as a wretched editorial in today’s Guardian claims, that we “are living too long and saving too little for the existing public sector schemes to remain viable”, adding: “Meeting the existing public pension shortfall will cost £4bn this year and £9bn by 2014: not affordable now, nor sustainable in the longer term.”
But why shouldn’t part of society’s wealth – which is the source of public spending – be used to fund proper pensions, even if it costs more? It’s the same argument that says the government’s budget deficit can only be solved through massive spending cuts, plunging capitalism into even greater crisis.
There is an alternative and it involves breaking away from a shattered system that takes pension contributions and then makes them dependent on growth in speculative investments in shares and property and/or steals the money in fees. It is about reorganising the economy along worker controlled, not-for-profit lines.
Pension fund managers will then be freed from the self-defeating requirement to maximise income by chasing profits from investments in hedge funds and derivatives, learning from co-operative ventures like Mondragon in Spain. Accumulated funds can then be directed to socially-useful purposes including community-owned and operated renewable energy generation, which in turn can produce income for further investments.
Public sector workers are already facing a wage freeze, redundancies and harsher conditions. Increasing pension contributions will amount to a further pay cut. Some union leaders have threatened strike action over pensions. Labour’s new leader Ed Miliband said strikes would “alienate the public” and he was opposed to them. In practice, the coalition ranged against ordinary workers stretches from one end of the mainstream political spectrum to the other.