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.