Prior to the credit crunch of August 2007, there was already talk of a ‘pensions crisis.' Final salary schemes (paying a guaranteed income on retirement) were being ditched by many employers. The demolition of these schemes has gathered pace.
It's no longer a question of the old schemes being closed to new members - often they are being closed completely, with accrued benefits being frozen. In their place, employers are offering so-called ‘defined contribution' schemes which mean workers build up a ‘pension pot' that can be exchanged for an annuity on reaching retirement age. Workers on these schemes are no longer guaranteed an income when they come to cash in their pension. Instead, the income received depends on the valuation of their pension pot which is largely dependent on the stock market. Cash it in at a time when the market is in free fall and your pension can be practically worthless.
Barclays Bank has already taken the plunge, proposing to close its current staff salary scheme to 18,000 members in favour of a less generous provision. Barclays is not alone. A recent report by Watson Wyatt, a consultancy firm, claims that "half of Britain's companies will close the schemes to existing members, while another 28 per cent will keep their scheme open to existing members but on less generous terms" (Daily Telegraph 17/8/9). These closures will affect over a million workers.
This has profound implications for the future of millions of workers, who will face penury in old age. And this is the perspective facing the ‘lucky ones' who have occupational pensions - over 22% of workers are planning to rely on the state pension in retirement and this number is set to rise to 27% within ten years (Observer 2/8/9).
How the bourgeoisie poses the problem
The bourgeoisie often claim this is because of an ‘ageing population' and due to the ratio of workers to old people going down. On the face of things, this appears to be ‘common sense'. Take, for example, a medieval peasant commune. With agricultural output per person rather limited, the number of producers needed to support the whole population is considerable. If the ratio of producers to consumers falls too low, not enough food would be produced and starvation would ensue.
Of course, capitalists don't like to mention things like starvation. And, in an epoch where overproduction is the real problem facing capitalist society, posing the difficulty in this way is obviously ludicrous. There's a contradiction: we have an abundance of objective resources, expressed in the overproduction of commodities - and yet, we have a lack of wealth, expressed in the terms of money and taxes. To pose the problem another way, we have an abundance of food and yet our pensioners are faced with not being able to afford to eat!
The problem confronting society today, then, is not the same problem that would have faced the hypothetical peasant village we visited earlier. The problem is not one of limited resources, or scarcity. The real problem that faces capitalism is not the production of goods but the production of profit.
No profit in old age
In capitalism's eyes, the sole purpose of the worker is to produce surplus value. When this is not possible (in periods of mass unemployment), the worker is surplus to requirements and is cast aside.
Similarly, when workers become too frail to work or are no longer able to adapt to modern production techniques, they are no longer a source of surplus value. They are utterly useless to capital and any resources diverted their way are a drain on capitalism's profits.
When retirement schemes were first introduced, life expectancy was much lower and the number of years of support for the old was quite limited. Often, there was nothing to pay out at all, because most workers would die before reaching retirement age: "in 1908, when Lloyd George bullied through a payment of five shillings a week for poor men who had reached 70, Britons, especially poor ones, were lucky to survive much past 50. By 1935, when America set up its Social Security system, the official pension age was 65-three years beyond the lifespan of the typical American" (Economist 5/6/9).
Today, life expectancy has risen from these low figures. In the UK, life expectancy at birth is now 79.1. The bourgeoisie now has to divert profits to support far more ‘useless mouths' for far longer.
As long as there is sufficient profit to be had, this isn't an insurmountable problem. But the last period of relatively smooth accumulation enjoyed by the profits-system was the post-war boom which came to an end in the late 60s. The re-appearance of crisis has thrown the entire policy of the welfare state into jeopardy. In the 70s, the bourgeoisie attempted to artificially raise consumption and actually increased the value of pensions. But once it realised that the crisis was here to stay, it began to cut back on superfluous expenditure. In the late 80s, the British state began to trim pension costs and reduced the value of state pensions, which have been in decline ever since.
Sunk by the crisis
When the credit crunch struck stock markets and other asset classes fell precipitously. This has had a drastic effect on the various pension schemes in Britain. 91% of final salary schemes are now in deficit ie they have insufficient assets to match their liabilities. The total pension deficit in March 09 was £219 billion (Telegraph 10/3/9) or 15% of GDP.
Parallel to this, the budget deficit has exploded as the state has attempted to rein in the worst effects of the crisis. The price for this intervention has been a massive increase in debt. "The combined effect of the financial crisis and recession has been to generate a deficit the likes of which has not been since the aftermath of the Second World War. Britain's total public sector net debt will be catapulted from a level of below 40pc last year to around 80pc or perhaps 100pc and beyond" (Telegraph 11/7/9). And pensions are now being explicitly targeted as part of the debt problem "The ageing of the population, in conjunction with the effect of imprudently generous pensions policies, means Britain's national debt could rise yet further to 200pc of GDP by 2050, according to S&P calculations"(ibid).
Lord Turner, the man behind the plan to raise the pension age to 68 by 2044, is now saying this won't go far enough. He is now suggesting that the pension age be raised to 70 by 2030 (Telegraph 3/7/9).
There is no question that - for capitalism - there is a real problem in supporting old age. But in terms of total expenditure of the economy, overall state expenditure on pensions and other pensioner benefits is only 6% of GDP. And what is the horrific projected figure of the future that is sending the bourgeoisie into palpitations? 6.8% of GDP by 2035, according to the Pensions Policy Institute!
Despite all their efforts to persuade us that the profits system has a future, the bourgeoisie's real assessment is revealed starkly by the growing pensions crisis. In a very general way, the collapse of pensions provision symbolises the way that capitalism is more and more forced to mortgage the future in order to keep the system limping on in the present. It also shows that the potential for meaningful, permanent reforms has long been exhausted. The concessions granted in the post-war boom began to evaporate for the next generation entering work in the 70s. Most workers today face a frightening future ‘retirement': a life of poverty, where even the dreadful perspective of ‘work till you drop' will actually be a luxury for the lucky few in a world of ever-growing mass unemployment. A life punctuated by the misery of ill-health and families bankrupted by the need to provide nursing care for their aging relatives. For millions of families across the world, this future is already here. Over two million pensioners are officially regarded as living in poverty. For the generations that follow, the perspectives are even worse.
Communism offers a different perspective to humanity, one which turns the traditional bourgeois idea of retirement (in reality, brief relief from the exhaustion of wage-labour before you die) on its head. The new society will be an epoch of rest for all, where labour will be desired for the pleasure of the work itself, and where every individual will contribute according to their ability and receive according to their need.
But to reach this new society, the proletariat must first develop its struggles in defence of its interests. Only in this way can it develop its confidence in its strength and the future it has to offer humanity. Massive movements against the brutal attacks on pension provision will prove to be a vital part of this struggle, as was seen in France, Italy and Austria in 2003/4.