LeftBanker

Lord Hutton’s report last week recommending changes to the public pension system is part of an assault on all our pensions – private, public and state. This is an element of the generalised assault on all our living standards as result of the billions of pounds that have been spent on bailing out the financial system from “the credit crunch” and billions lost from the recession that it induced.

The media’s portrayal of public sectors workers’ pensions as being “gold plated” is an attempt to split public and private sector workers and those receiving only a state pension. The facts could not be further from the truth. Half of public sector workers receive an average pension of £5,600. The total average public sector pension is distorted by a small percentage of highly paid civil servants, senior managers in local council and the NHS and doctors.

Hutton’s proposals are a combination of the attacks already taking place on the state pension and private company pensions. As with the state pension he wants to increase the retirement age; for the public sector workers this will be 65 – the state pension age is to be raised to 66 and women will be given “equality” by having their retirement age made the same. The other two attacks are ones that have been widely used in the private sector: raising the level of contributions that employees must make – Hutton suggests a rise of 2 to 4 per cent in contributions – and changing the level of pension paid out from being based on your final salary before retirement to one based on the value of your assets in the pension fund. The exact details will be announced in coalition’s spending review on 20th October. In addition pensions as a whole will now be linked to the less generous consumer price index rather than the retail price index.

The major problem for the government is that there is a near one trillion pound gap between the assets that they hold in public pension funds and today’s value of what they will have to pay out when public sector workers retire. Currently, this is adding £4 billion annually to the deficit but will keep on rising year by year – it is estimated to reach £10 billion by 2015.

Historically, the type of pension paid out by a fund was based on a defined benefit scheme (DBS). These provided a guaranteed income based on the number of years of employment and on the employee’s final years’ salary.

These pensions were a guaranteed liability to the fund which had to be matched by the pension fund’s assets in their current investments. This is calculated by taking the future liabilities and discounting them back using future interest rates to work out what their current value would be today. As interest rates declined and stock markets fell, there was shortfall between the current value of future guaranteed pension payments and the current value of assets held by the pension fund – over the last ten years the UK stock market is down 40% in real terms.

So pension funds have been moving to defined contribution schemes (DCS) which pay out at retirement the return of the investments a fund’s pension scheme has made. They offer no guaranteed retirement income and shift the risk from the fund to the employee. Their future retirement income becomes a gamble on the financial markets. This has been happening widely in the private sector – ASDA announced such a change this week – and is now being applied to public sector pensions.

Pensions are in fact deferred wages and the generalised attack on all pensions is part of capitalism’s attacks on wages – an attempt to both make us pay for the crisis and return private companies back to higher levels of profit.

The opportunity is there to unite private and public sector workers and the poor in a campaign to defend our right to a dignified retirement and work towards an alternative solution based on everyone having the free provision of all basic needs – a future not dependent on the whims of the financial markets or of capitalism itself.

The cry that goes out whenever a fair tax redistribution system is suggested that if one was implemented the rich would leave the country in droves. The implication being that we either could not function without them and that our economy and our society would crumble. Is this really the case? The facts would point to a completely different picture.

Figures derived from the HM Revenues & Customs report show that the majority earn most of the wages in Scotland.

However, the top 7.7% of earners take home 26% of the total  wage pot. Would increasing their taxes make them all leave the country? This is very doubtful as there would not be sufficient jobs, there are 193,000 of them, which pay this level of these wages in other countries. These people have family and cultural ties that would make them not want to leave Scotland on this scale. The other interesting thing about this table is that the top 20,000 of earners take home about £4 billion before tax a year. Yet the richest 100 Scots have a personal wealth of over £16 billion.

This rich elite are contributing very little  to the country through earnings and taxation.  It would be them that had the financial ability and incentive to up sticks and leave but losing them would be no real financial loss to the country. But we would want to hit them with a one off 10% tax on their wealth before they could scarper. They have benefited from a massive redistribution of wealth over the last thirty years that has seen the liquid wealth of the bottom 50% of society fall from 12%  to 1%  while the top 0.01% have seen their incomes go up by 500% in the same period. This income inequality goes much deeper with the top 20% of households earning 15 times the bottom 20% of households (£73,800 to £5,000). The rise of credit over the last three decades that resulted in the great credit bubble is largely down to this redistribution of wealth. How else could we pay for anything?

But where would our industry be without the investment of the very rich? Figures published by the office of national statistics show a very different picture. Most of the investment in UK companies comes about to provide working people in the UK and overseas with their retirement and to protect them against future unknown risks through their pension and insurance funds.  68% of the ownership of UK shares in the hands of UK and overseas and pensions and insurance funds. Only 10% of UK shares is held by private individuals. The bulk of this 10% has not come from the rich ploughing money into companies but from  companies giving shares as part of a bonus package to their senior personnel within these companies. It is part of the transmission belt of the redistribution of wealth we have seen over the last thirty years.

Finally, we are faced with a public debt of £935 billion, £305 billion has to be renewed in the next five years, which the government is forecasting will grow by £535 billion over the next five years despite the cuts and on top of that interest repayments of £250bn over the same period. How are we going to pay for this?  Is it the rich who have benefited from the credit bubble economy or the majority of us? Well it will be largely us. UK pension funds own 33% of UK public debt while the Bank of England (BOE) holds another25% and foreign central banks hold 28%. The BOE of is owned by people of the UK and acts as its’ central bank by being the UK government’s bank.  No rich individuals are stumping up any sizeable chunks of their money to pay for the public debt. Debt that was and is largely being run up by the financial crisis and the resultant recession which the rich had a big hand in causing.

Do we need the  rich?
The answer is no but they clearly need us!

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