‘The
Department for Work and Pensions is to revive the Pensions
Commission,
which last met in 2006, to tackle the issue of working age adults
failing to put enough money into their retirement savings. It has
also commissioned the next review of the state pension age, currently
66. The work and pensions secretary, Liz
Kendall,
said a long-term commitment to the triple lock on pensions is not in
the scope of the resurrected Pensions Commission.
‘
https://www.theguardian.com/politics/live/2025/jul/21/keir-starmer-nigel-farage-speech-reform-labour-crime-latest-uk-politics-live-news-updates
From
the November 2004 issue of the Socialist Standard
‘Last
month the former head of the CBI, Adair Turner, presented his report
to the government on future pension provision. It made for scary
headlines. “Pension crisis looming for 12 million workers”,
worried the Times (13 October). “Harsh truth is that we must
save more or risk retiring in penury,” and went on:
“The
root of the problem is increasing life expectancy and lower birth
rates. By 2050, the proportion of British people over the age of 65
will increase from 28 percent today to 48 percent. This will leave
Britain with dwindling numbers of taxpayers to support a massive
retired population.”
Is
this true? Will society be unable to cater for future pensioners at
the same standard of living as they have today? Is there going to be
a sort of class war between the generations, between those at work
and those who have retired over how the national income should be
divided between wages and pensions?
The
short answer is: No. These are scare stories put around by employers,
who want to reduce the contributions they pay into company pension
schemes and the taxes they pay for state pensions, and by insurance
companies, who want to sell more private pensions.
They've
got one thing right though: in any society those who don’t work
have to be maintained out of what is produced by those who do work.
Everybody would agree that this is fair enough as far as people over
a certain age are concerned, as well as for younger people who for
one reason or another are unable to work.
But,
in present-day, capitalist society there is another group of people
who don’t work, and have to be maintained by those who do, namely,
those who live off what used to be called “unearned income”,
income in the forms of rents, interest and dividends derived from
property ownership. That in fact is a good starting definition of a
member of the capitalist class: someone owning sufficient
profit-yielding assets to be able to live without having to work.
The
source of all such unearned income (and indeed of the fat cat incomes
of top directors, which is only unearned income disguised as earned
income) is what Marx called the surplus value produced by wage and
salary workers over and above what they are paid, which generally
speaking corresponds to what they need to keep themselves fit to work
at their particular trade or profession. It is out of this unpaid
labour that not only the idle rich but the whole non-productive
superstructure of capitalist society (the armed forces, civil
service, legal system, banks, insurance and other money-handling
activities) has to be maintained. What allows capitalism to maintain
an enormous – and still growing – non-productive sector is the
high level of productivity in the productive sector, a productivity
which increases slowly but steadily all the time, historically at a
rate of one to two percent a year.
Pensioners
too are maintained out of this surplus but pensions are not a
transfer payment from workers to pensioners, as the scare stories
suggest; they are not paid for by ‘workers paying taxes’ since
the burden of taxes paid by workers is in the end passed on via
labour market forces to employers. Pensions are a transfer payment
from the profits of the capitalists, even if ultimately these profits
come from what workers produce. So, even if the ‘over-burdened
pension system’ was to be reduced, this would not benefit the
working population since the capitalist class would not dream of
passing this on as higher wages and salaries.
Growth
of pension schemes
One
of the non-productive activities that the capitalist State has to
undertake is the maintenance of the poor, those members of the
working class who are unable to work and therefore have no income
from a wage or salary paid by an employer: the sick, the handicapped,
the unemployed and of course the old. This used to be done under what
was called, appropriately enough, the Poor Law, which required local
parishes to maintain the poor from within their boundaries. The fate
of poor old people was the workhouse.
The
history of the “Poor Law” is the gradual nationalisation of the
system, accompanied by changes of name such as social insurance,
national insurance, social security, national assistance, income
support, pension credits, and the substitution of money payments for
so-called “indoor relief” in a workhouse. By the turn of the last
century, the authorities began to discover that so-called “outdoor
relief” – a monetary payment – was actually cheaper than
“indoor relief” and in 1909 stingy old age pensions were
introduced for some workers aged 70 and over. This was financed by
contributions from employers and workers and from general taxation
and was baptised “social insurance”. It is still the basis of the
State Old Age or Retirement pension in Britain today.
The
level of the basic State pension has always been fixed as below the
official poverty line, with the result that an increasing proportion
of pensioners are on means-tested benefits to bring them up to the
poverty line. As these top-up “pension credits” are tied to
average earnings, the number of pensioners on means-tested benefits
is expected to go up year by year. Turner – and the so-called
“pensions industry” – are against this scheme as it discourages
people from buying private top-up pensions (what they mean by
“saving”) since most of any such pensions are deducted from the
State's means-tested benefit.
To
start with and until 1948, the State scheme only applied to a section
of the working class, essentially manual workers in private industry.
A different situation had evolved for people working for national and
local government – so-called “superannuation” schemes
(superannuation is just another word for pension), under which in
return for contributions related to their salary, workers received a
pension also related to their salary. These schemes were not funded,
i.e. the money from contributions did not go into a fund that was
invested, but went directly towards paying existing pensioners, a
system known as “pay-as-you-go”. The logic was that funding was
unnecessary since it would always be possible to find the money to
pay pensions as governments don’t go bankrupt.
Superannuation
schemes were also introduced, for office and supervisory staff, in
the private sector. Eventually, these all came to be funded, to
separate the money for pensions from the firm’s capital and so stop
it being raided if the firm ran into cash flow problems or went
bankrupt (a protection which has exactly not proved 100 percent
efficient in recent years.)
A
funded scheme means that contributions from members and their
employers are paid into a fund which is then invested in government
bonds or in shares or in property, and pensioners are paid out of the
interest and capital gains on these. In recent years, with the slump
in stock market prices, there have been capital losses rather than
capital gains and these schemes have run into financial difficulties.
Employers have been using this as a reason for cutting benefits, at
least for new entrants. Increasingly, these are being forced into
schemes which offer smaller and less secure pensions that are no
longer related to wages or salary but purely to the amount invested
and to the vagaries of the stock market.
A
third type of pension arrangement is an entirely personal one where
the pension payable depends on the contributions (and the income from
investing them) of the individual person concerned. These are
basically savings for retirement arrangements which also involve
placing the money on the stock exchange and so have run into
difficulties for the same reasons as funded pension schemes. They are
the ones that are notoriously subject to so-called “mis-selling”.
Funded
schemes are based on strict actuarial principles and have to be to
remain financially viable in the sense of having enough money to be
able to meet all their obligations to future as well as present
pensioners. What actuaries do is to take statistics on life
expectancy and a likely real interest rate over a long term to work
out, given the pension benefits under the scheme, how much money
needs to be paid into a pension fund to allow it to pay all the
pension rights acquired at a particular time. Clearly, if people are
living longer – as they are – that means pensions are going to be
paid for longer, which means that the scheme is going to need more
money to pay them. In actuarial terms, this means more money has to
be paid into the scheme, i.e. contributions have to be increased.
In
this sense, for funded schemes, the fact of people living longer does
indeed mean that the pension contributions for working members have
to increase. But actuaries have known for years about likely future
population trends and pension schemes will have already taken this
into account. What has caused the current financial problems for such
schemes has been the unanticipated slump in stock exchange prices.
This is mentioned by Turner but almost in passing, since he is all in
favour of people’s pensions being dependent on the vagaries of the
stock market.
One
idea mooted by Turner to save money on pensions is for the normal
pension age to be raised from 65 to 70. This of course would mean
that pensions wouldn’t have to be paid for so long and, as the TUC
has pointed out, no pension at all would have to be paid to those who
die between 65 and 70, as one in five existing pensioners do (Times,
19 July).
The
ghost of Malthus
But
this problem only applies to invested, funded pension schemes and
cannot be validly extended into a general social problem of “too
many old people” or “people living too long” (even though it
would be typical of capitalism to regard what is after all an
improvement in the human condition as a problem). The fallacy is that
the narrow financial criteria that apply to funded pension schemes
don’t apply when it comes to considering the economy as a whole.
Here the broad economic, rather than the narrow financial, position
is what counts:
“Over
the twentieth century the British population grew from about 36
million in 1900 to 56 million in 2000. People aged over 64 grew from
about 1.8 million (five percent of the total population) to about 8.6
million (fifteen percent of the population). So the total number of
mouths to feed and support rose by one-half, the proportion of
elderly rose three times and the numbers of elderly rose nearly five
fold. All these increases were dwarfed by the seven-fold rise in
annual wealth production.”
And
for the future:
“The
long-term record of productivity growth alone undermines the claim of
a demographic time bomb in the future. Even without any increase in
the size of the active workforce, productivity growth at this
long-run trend of about two percent a year means a near doubling of
annual output over the next 40 years” (The Challenge of Longer
Life: Economic burden or social opportunity?, Catalyst pamphlet,
2002, p. 28).
The
“too many old people” doom merchants are making the same mistake
as Malthus made two hundred years ago with his (completely wrong)
predictions about “overpopulation”: they are ignoring that
productivity also increases over time, so that whereas there are
indeed proportionately less workers engaged in production they are
able to produce proportionately more wealth. It is the increasing
productivity that will go on between now and when existing workers
retire that will mean that society, even capitalist society, will be
able to support the expected increased proportion of retired people
in the population. There is in principle no problem here.
So
why the scare? Basically, because there’s a vested interest
involved – the self-styled “pensions industry”. They want to
reduce the State’s involvement in pension provision to paying a
basic minimum pension so that they can themselves make money out of
providing any pension over and above this. They’ve got their greedy
eyes on the £57 billion a year “shortfall” mentioned by Turner
and on the commissions they can make on this if the government forces
both employers and employees to “save” this amount, or even a
proportion of it, each year.
What
in fact is ironic – or rather, it’s a bare-faced cheek – is
that they are not an “industry”, i.e. not part of the productive
sector, at all. They are part of the non-productive sector
maintained, just as much as pensioners are, out of the surplus-value
produced in the productive sector. Not one person working in
insurance companies and other private companies engaged in pensions
provision produces a single item of wealth. From an economic point of
view they, too, are a burden on surplus value. But don’t expect any
government report to point that out.
The
real question facing workers is whether they should continue to
support the whole non-productive superstructure of capitalist society
when, if it were to go, along with capitalism itself, how we they
going to survive in old age wouldn’t be a perpetual worry, since in
socialism every member of society, including the old, would have free
access, as a matter of right, to what they needed to live and enjoy
life.’
Adam
Buick
https://socialiststandardmyspace.blogspot.com/2015/06/will-there-be-too-many-pensioners-2004.html
