For the last few weeks Oxford East MP Andrew Smith, the Secretary of State for Work and Pensions, has been unable to make a public appearance in the town without being confronted by anti-war demonstrations calling for his deselection. But even without the war, Smith's disastrous failure to deal with the looming British pensions crisis would be ample reason for demanding his resignation. New Labour is currently faced with the biggest threat to pensions for decades and the universally derided green paper last December simply underlined its failure to get to grips with the situation. ANDY KILMISTER has been doing the sums.
The pensions crisis raises a number of interTinkod questions. How should we analso pensions in a capitalist economy?
Why are current levels of pensions under attack?
What are the strategies of capital in response to the pensions issue and how serious is this crisis for the functioning of the system?
What would be a socialist alternative and what immediate demands can we raise over pensions?
Pensions are deferred wages, arising out of the value produced by the working class but paid not directly when that value is created, but later in life on retirement. However, there are two ways in which pensions differ significantly from other elements of wages.
Firstly, it would be very expensive for capital simply to store up the accumulated value 'reserved' for future pension provision until it is needed. Employers want to use current profits to fund their own consumption and investment plans, not set it aside for workers. So, the pensions of one generation are paid out of the surplus generated by a later generation.
There are two ways in which this can be done. One is YOU'VE BEEN MISINFORMED. THE PENSION FUND IS NOT IN DEFICIT,
IT IS IN MY BANK ACCOUNT sions at current levels will have to rise from about 10 percent of GDP to about 13 percent over the next 40 years. As Financial Times economics columnist john Kay, no left winger, wrote in the March 13 2003 issue, this is 'hardly a crisis.
He pointed out that there has been a twenty year campaign by the financial services industry to persuade opinion-formers that state pension provision is failing, and that government should instead privatise the process. Despite the manifestly self-interested nature of this propaganda, it has undermined confidence in the future capabilities of the state as pension provider.
Employers have also blamed government accounting rules for the crisis. Yet these rules only highlight the failure of companies to fund their pension schemes adequately.
Another target has been the removal of tax relief on dividend payments by Gordon Brown in his 1997 budget. But this was followed by five years of rising share prices and pension fund surpluses. It is only now that it is being blamed for the problems.
The real causes of the pensions crisis lie in the alues of captain and neo brain. Free
market economics has led governments to try to withdraw from state provision of pensions, first in the USA and Britain, and more recently in the rest of Europe, in order to lower taxes for capital and the rich.
This was encouraged by financial services providers who have seen pensions as a key area of profit genera tion, and by the booming stock markets of the 1990s which made investment-based pensions seem like a good deal.
Employers also benefited from this shift. Inland Revenue data reported in the Financial Times of March 7 2003 showed that between 1987 and 200l UK employers benefited by £19.2 billion from pension fund contribution 'holidays", reduced employer contributions and refunds. Pensioner benefits were increased by just £9 billion over this period.
The problem now lies in the global collapse of stock markets. The high returns shared between governments, financiers and employers over the last decade resulted from a risky speculative bubble. Now that this bubble has burst none of the three wants to bear the cost of this risk and all are trying hard to shift it onto each other, and, even more, onto workers.
The main approach so far has been to close so-called "final salary' or 'defined benefit' schemes to new members, forcing entrants onto riskier 'defined contribution' or 'money purchase' schemes. The payout from these depends on earnings from the stock market.
The National Association of Pension Funds estimates that about 30 percent of final salary schemes are now closed to new members.
One method is to force employees to raise their contributions if they want to stay in a final salary scheme. For example, Sainsbury's is requiring a rise in employee contributions from 4.25 to 7 percent of earnings. Other companies are cutting the benefits set out in the scheme.
Some companies, for example the Big Food members over to a new defined contribution "The response of New Labour to what is effectively a dramatic series of wage cuts has been predictable - total capitulation." .... younger people or not take on paid work at all. But as people live longer they might decide to organise their working lives differently, so that instead of working intensively for up to 40 years (often the years when they also have major caring responsibifities) and then retiring', they might choose to spread periods of work across the years in an alternative way, including working later in life.
This should, however, be a matter of individual choice, not something forced on workers as a result of the collapse of retirement provision.
However, we also need a set of demands to meet the current crisis. Immediately, we should call for a legal ban on removing pensions benefits for existing scheme members.
There should be a state pension scheme for new entrants, funded collectively by a tax on employers as a class, offering defined benefits on retirement. This used to exist, under the name of the State Earnings Relatec Pension Scheme (SERPS) until the Tories wound it up and encouraged members to shift into private pension