The great pensions robbery

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.

Paul Feldman
Communications editor

Coalition walking a tightrope

That the first serious opposition to the government’s cuts programme has come from within the Tory Party rather than from the usual quarters, reveals the not only the depth of the financial crisis but mounting problems within the Coalition itself.

In office for just two months, the Lib Dem-Tory government is facing all sorts of stresses and strains and you would not put your money on it lasting the scheduled five years. The axing of the school building programme by education secretary Michael Gove has prompted a furious response from within the Coalition.

Last night, Lib Dem Scottish Secretary Michael Moore criticised Gove over the fact that the announcement on the cuts was replete with errors, leading some schools to think mistakenly they had been reprieved. Three Tory MPs have denounced Gove and one threatened to lead a march on Downing Street of parents, students and teachers!

Ian Liddell-Grainger, Tory MP for Bridgwater and West Somerset, attacked plans to halt three schools in his constituency and put three others under review. “If I have to stand outside Downing Street and say, 'Can we please have a chat?', then I am more than happy to do so," he said. Teaching unions have organised a lobby of parliament, to take place on Monday 19 July – a date which coincides with the second reading of the government's Academies bill.

The Coalition’s attack is broad-ranging and will hit every section of the community, whether they voted for the Coalition parties or not. For example, pensions minister Steve Webb is proposing that private sector pensions schemes drop inflation-proofing based on the retail prices index (RPI) and replace it with the much lower consumer prices index (CPI). A pensioner currently receiving £10,000 a year will be more than £800 a year worse off by 2016, according to one estimate.

Apparently the government is concerned that the remaining final salary scheme pensions could go belly up over the next few years and land the government with the cost of picking up the pieces. Cutting the value of pensions by adjusting them for a lower measure of inflation is the Coalition’s answer.

The Coalition is walking a financial tightrope and could fall off at any time. Debt payments alone on the national debt amount to £40 billion in 2010-11 – and are expected to rise to an astonishing £70 billion, which is about 15% of the annual state budget. The government’s own calculations about reducing the budget deficit are themselves based on wildly optimistic forecasts about economic growth.

On many measures, Britain is the most indebted country among the advanced capitalist countries. As the government admits in its latest budget report: “Between 2002 and 2007 there was a near tripling of UK bank balance sheets and the UK financial system had become one of the most highly leveraged [i.e. financed by borrowing] in the world, more so than the US.” British banks are, by the way, still desperately short of capital

The scale of the task facing the Coalition – which wants to “rebalance” the economy in favour of the private sector – is immense and, in my view, beyond its capacity. What they are proposing could only be carried through by force. The groundswell of opposition and discontent that is already building up throughout society will undoubtedly provide us with an opportunity to defeat the Coalition. Building a network of People’s Assemblies to unite communities and plan for a socially-driven alternative to the nightmare of the capitalist financial and economic crisis is key to winning this historic battle.


Paul Feldman
Communications editor