Pension Reform: Stealing humanity's future

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In October the Pensions Commission published its first report on the future of pensions in Britain. It painted a stark picture of what the working class faces with the intensifying attack on pensions.

The introduction of state pensions was presented as one of the great triumphs of capitalism, as proof that it was capable of meeting human needs. The politician responsible for introducing the first state pension in an industrial country was more pragmatic. "Whoever has a pension for his old age is far more content and far easier to handle than one who has no such prospect. Look at the difference between a private servant and a servant in the chancellery or at court; the latter will put up with much more because he has a pension to look forward to". These were the words of Otto Von Bismarck, the German Chancellor, as he began to introduce a system of national insurance across Germany in the 1880s. This 'state socialism' was the counterpart to the anti-socialist law of 1878 that banned socialist organisation and agitation and the publication and distribution of socialist literature. Where the one sought to deny the independent political expression of the working class, the other sought to remove the need for such expression. Further, the introduction of state benefits tended to replace or minimise the system of benefits set up through the trade union and social organisations of the working class and, thereby, tied the workers to the bourgeois state.

Pensions were introduced in Britain with the Old Age Pensions Act of 1908, which gave means-tested benefits to those over 70. The Act was passed in the middle of an intense period of class struggle that was beginning to have revolutionary overtones and also when there were growing concerns about the ability of British capitalism to keep up with its rivals. Subsequent legislation continued to have the twin aims of pacifying and containing the working class and of ensuring a sufficient supply of healthy workers. The role of pensions, as Bismarck said, was to give workers something to hope for, but also something to lose, while the social impact of industrialisation made it necessary to give some support to the non-productive parts of the working class in order to allow the better exploitation of the productive part. Welfare legislation always arises from the economic and political needs of the bourgeoisie.

During the First World War a ministry of pensions was set up in Britain as part of the wider 'welfare movement' that expressed the strengthening of the state necessary to wage the military struggle. After the war, as the struggle of the working class and the economic crisis shook capitalism around the world, pensions were extended and the amount increased, although those receiving them were still below the poverty line. At the end of the Second World War, the National Health Service and National Insurance Acts established the framework of the Welfare State. The Basic State Pension was introduced, linked either to earnings or prices. This has never been very generous (in 1946 it was £1.30 a week, in 2003 £77.45) and a range of occupational or private pension schemes developed alongside it. In 1978 it became compulsory for all employees who earn above a certain level to enrol in a second pension, either the State Earnings Related Pension (SERPs) or a private pension.

The pensions crisis

Today pensions around the world are in crisis as the funds available become insufficient to meet the need. A recent OECD report noted "there seems to be increasing concern over the funding situation of defined benefit plans in many OECD countries. In the United Kingdom, where pension funds always have had a relatively high equity allocation, recent estimates for the aggregate shortfalls range from BP 55 to 65 billion (or 6� per cent of GDP). In Japan, estimates of deficits of around USD 200 billion were cited in the press. 73 of the 1650 corporate pension funds were dissolved in fiscal year 2002, while 366 reduced the benefits they had promised to pay. A recent report estimated that pension fund assets at 100 of Japan's largest companies covered less than half the cost of payments due to retirees. In Canada, underfunding has been put at CAD 225 billion (20 per cent of GDP). In the Netherlands, the average funding ratio of pension funds fell by 25 percentage points in the two years to 2002, dropping in many cases below 100 per cent� In Switzerland, funding ratios have declined to 100 per cent or less in most pension funds... In Germany, Siemens indicated that under US accounting rules its pension shortfall exceeded 5 billion Euro in mid-2002." (Recent Developments in Funding and Benefit Security, November 2003).

According to the mouthpieces of the ruling class this is a simple, 'natural' consequence of the increase in the older population. In reality the pensions 'crisis' is an expression of the global crisis and the response of the bourgeoisie. In Britain pensions have been under attack since the late 1970s:

  • the introduction of compulsory second pensions in 1978 was a recognition of the inadequacy of the basic state pension;
  • in 1980 the Basic State Pension was indexed to prices rather than wages leading to its reduction from 24% of basic earnings in 1981 to 16% in 2002 - a reduction of some £30 a week for a single pensioner;
  • in 1986 the value of SERPs was significantly reduced and workers were 'encouraged' to opt out in favour of private pension schemes;
  • in 1993 further 'incentives' to opt out were introduced;
  • in 1995 the Pensions Act further reduced the value of SERPs, announced that the retirement age for women would rise from 60 to 65 between 2010 and 2020 and relaxed the regulation of occupational pension schemes, which were no longer required to provide Guaranteed Minimum Pensions.

Many companies gave themselves 'contributions holidays', or even took money out of the pension funds. Some £19bn was not paid into funds, with 94% of this being used to reduce employers' contributions and only 6% to reduce employees. Over three-quarters of final salary pension schemes have already been closed and replaced by less valuable ones, with the result that the contributions of many employers has halved from 12% to 6%.

The overall tendency has been to shift the risk to the employees: "The UK places greater responsibility on its citizens for looking after their own needs than any other developed state. Indeed, both major parties are still committed to changing the current 60:40 ratio between state and employee investment in retirement income to 40:60." (Guardian 13/10/04).

Labour - continuing the attacks

The Labour government and its apologists have made great claims about reducing pensioner poverty. But they can't hide the fact that the working class, and especially the poorest part of it, have not actually benefited that much. Firstly, as is noted by the author of an article in the Guardian (13/10/04, 'We cannot allow the poor to fall into the pensions abyss'). "A third of poor pensioners don't claim pension credit, leaving a million people to live on the basic pension with little or nothing else, in a poverty that is beyond contemplating" She is mystified by this "since they [the government] already pay these missing claimants their pension every week. They know who they are; they know where they live�it should not be beyond the wit of the Department of Work and Pensions to knock on the door of every single one of them and help fill out the now simple forms". Secondly, the poor tend not to live so long to collect their pensions: "Sir Michael Marmot, director of the International Centre for Health and Society at University College London, recently pointed out that the difference in life expectancy between the rich and the poor rose from 5.5 in the 1970s to 9.5 years in the 1990s. If you take the central line from the centre to the east of London, he explained, for every stop there is a drop in life expectancy of a year" (Guardian 14/10/04). Given that significant numbers of the working class don't live much beyond 70, the proposal being floated of an increase in the retirement age, albeit dressed in the hypocritical language of choice and equal opportunities, could go a long way to solving the crisis.

No better tomorrow

The assault on pensions that is taking place throughout the developed world is part of the systematic dismantling of the post-war welfare state (see WR 277 'The dismantling of social security'). The approach in Britain has been a gradual, piecemeal one, but, in the case of pensions, it has gone on for a quarter of a century so that cumulatively such attacks have gone furthest here. These are not Tory attacks or New Labour attacks but attacks by the bourgeoisie as a whole; an expression of the class war.

The pensions crisis is not due to increased numbers of old people but to the inability of capitalism to use the immense resources it has created to meet human needs. Capitalism is locked in a contradiction it cannot resolve. With pensions this is expressed in the fact that the working class is being exhorted to save more for the future while it is also required to spend more now to keep the economy going: "if everyone responded to the recent pleas for a dramatic increase in savings to fund future pensions, a huge hole would appear in the economy: consumer spending would collapse" (Guardian 12/10/04)

Capitalism is no longer able to offer the pretence of a better tomorrow. The future will be one of increasing exploitation and poverty. There will be efforts to hide this, but it is becoming harder to do so. If the working class wants to plan for the future it must regain the vision of communism. It must raise again the rallying cry of "from each according their means to each according to their needs". To realise this vision it must renew the struggle against capitalism today - against its attacks and its lies. This has nothing to do with the anti-globalisation and 'alternative world' movement that celebrated its futility in London last month. To defend the welfare state of the 20th century against 'neo-conservatism' is no more in the interests of the working class than to have defended the laissez-faire capitalism of the 19th century. The working class has no interest in looking back to decide which period of its exploitation was preferable, it can only look forward to the ending of all exploitation.

North, 30/10/04.