For many months they have been hailed on thousands of posters and in newspaper adverts, but none was available so far. Now the long wait is over. Blair's "stakeholder pensions", the final instalment of his flagship "Welfare Reform", will see the light of day on April 6th, when the Post Office - or rather "Consignia", as it is to be re-branded soon - unveils the first of these new schemes. At the same time off-the- shelf packages will be put on sale in post office branches and supermarkets up and down the country. Next to the ISAs, TESSAs, peps and other brainchildren of this government, they will represent the climax of Blair's version of "popular capitalism".
Officially, these pension schemes are specifically designed to suit the needs of the 4.5m or so workers whose annual income is in the £10-20,000 range but who do not belong to any occupational scheme, either because they work for very small companies or because they are in casual employment most of the time. So, according to the official blurb, these schemes are supposed to be "cheap, cost effective and flexible". They will allow members to switch from one job to another or take a "contribution holiday" as they need, without losing any of their rights. In short, they should enable almost everyone (except the very poor who will still not be able to afford them and the better off who will not need them) to plan for their old age "responsibly" - i.e. without having to rely on the "nanny state".
Moreover, together with the string of accompanying measures which should be implemented over the coming two years, these stakeholder pensions are supposed to address once and for all the chronic plague of pensioner poverty.
But will they really? And is this Blair's objective? The answer is a definite no. Indeed, like in so many other fields, not only is this Labour government following the track of Thatcher's attacks against workers' pensions in the 1980s, but in fact it is going much further than the Tories were ever able to go. The packaging may be different, in so far as Thatcher never bothered to resort to the hypocritical "compassionate" posturing used by Blair and his ministers. But the anti-working class content and pro-business logic are identical and the consequences are bound to be even more dramatic if this government is allowed to proceed with its plans.
Decades of old-age poverty
Before going any further into Blair's plans, it is worth considering the state of today's pension system and how it was shaped.
It must be pointed out first that for all the talk about the grand "welfare state" of this country, working class pensioners have always had a particularly bad deal. The idea of the "good old days" of the pension system is nothing but an illusion.
There was, however, at least one positive feature in the system that was put in place in the postwar years, which still remains for the time being (though for how long is another question): that the generation in work would provide for the pensions of those in retirement through their National Insurance contributions and that the government's income from taxation would be used to fill the gaps if necessary. It was taken for granted, therefore, that society as a whole was responsible for the livelihood of its senior members and that this fundamental solidarity between generations would enable the system to perpetuate itself.
Social solidarity, however, was not the main concern of the postwar Labour administration. Above all, its aim was to provide the capitalist class with a low-cost labour force, while paying for the investment that the capitalists were not prepared to make through the nationalisation programme. All social benefits were, therefore, calculated so as to make low wages just about bearable, including the state pension, which was only designed to relieve low-paid workers from some of the burden of having to support their parents or grand-parents. Thus the flat-rate state basic pension was set at a mere 19% of average earnings. And there were no statutory provisions for uprating it - at least not until the 1970s when a system of indexation on average earnings was introduced.
The justification for such low pensions - which is still used today - was that they could always be complemented by means-tested benefits for those who had no other income. As if there could be any justification in forcing workers who slaved away all their lives, to beg for their livelihoods in DSS offices when they should at last have been able to enjoy a rest! Besides, these benefits never amounted to much and certainly did not pull pensioners out of poverty any more than they did the poorest layers of the active population.
The other main form of pensions - occupational pensions - predated World War II in many industries and large companies. Unlike the state system, these schemes were not based on the solidarity between generations. Rather they operated like more or less individualised savings accounts. Each worker paid something into the scheme out of his wage packet. The role of the scheme's trustees was to ensure a regular increase of the fund - just like in any capitalist investment fund and with the same unpredictability. When a scheme member reached retirement age, his savings were "returned" to him either in the form of a lump sum or as a weekly payment. Schemes like those of the miners and British Rail had only two or three rates of payments, whereas in other schemes, the payments were more or less proportional to workers' wages. However there was generally no guarantee as to the amount of the pension paid. Besides, whenever a scheme member moved from one job to another, it was difficult if not impossible for him to get his contributions back. By and large these pensions were merely a complement to the state basic pension and their payment often depended on the relationship of forces between the companies and their employees.
Only in the 1970s were occupational pensions regulated by law. Membership became compulsory in all the workplaces where a scheme existed. It also became compulsory for employers to pay a contribution into the fund for each employee (out of the workers' wages, of course). In most cases, workers' contributions became proportional to their wages and guaranteed pension levels became the norm (if only on paper as the Maxwell scandal showed later).
In addition to this, the Labour governments of the 1970s created a compulsory second state pension for those not in an occupational schemes - the State Earnings Related Pension Scheme or SERPS as it was called. SERPS was based on the same solidarity principle as the basic pension, except that it was not a flat-rate pension. For employees in the middle-earning band, it provided a pension equivalent to 25% of their average past earnings.
So, overall, pension levels improved in the 1970s. Not all that much in the medium term, however. Indeed there was no mechanism to protect either SERPS or most occupational pensions against the erosion of time, so that with the high level of inflation which lasted throughout the 1970s and well into the 1980s, these additional pensions shrunk very fast after a few years in retirement, particularly for the low-paid.
The result of this was that in 1979, when Thatcher came into office, pensioners' incomes were so low that 57% of them were entitled to means-tested supplementary benefits.
Pensions for sale
One of the first gestures of the new Tory government, in 1979, was to launch a full-scale review of the pension system. Out of this came, in 1980, the apparently innocuous decision to link the state basic pension to the Retail Price Index instead of average earnings. With the extensive massaging of official indices which followed over the subsequent years, this change resulted in a reduction of the value of the basic pension from 23% of average earnings in 1978 to 16% today (since Labour did not reverse the 1980 decision after 1997). According to calculations made by the National Pensioners' Convention, had the basic pension retained its link with average earnings, it would be worth 50% more today. Besides, with the increasingly precarious nature of employment over the past period, it has become more difficult to qualify for the full amount of the basic pension so that 14% of male and 51% of female pensioners do not qualify today. And this is not likely to improve, judging from the numbers of workers whose earnings are below the Social Security threshold: last year there were officially 2.47m employees in that situation!
The Tories' second major attack on the pension system came with the 1986 Social Security Act. This Act was entirely driven by one objective: to reduce the role of the state in the pension system while redirecting National Insurance contributions towards private finance institutions. SERPS was the first target. The 1986 Act, although it did not admit it, effectively paved the way for the winding up of SERPS by reducing its value in stages. But in the short-term, Thatcher's objective was primarily to discredit SERPS by portraying it as a low and potentially precarious scheme. The same objective was pursued with regard to occupational schemes. Compulsory membership became illegal, thereby weakening the financial basis of these schemes, while the obligation for employers to contribute to new occupational schemes was repealed. On the other hand the contracting out of occupational pensions by means of group pension schemes, managed by insurance companies, was strongly encouraged.
At the same time the Tory government launched a huge campaign in support of personal pensions. Workers were encouraged to opt out of SERPS or out of their occupational pensions and to take up personal pensions. A whole range of lures were deployed to make this option more attractive. In addition to a rebate on their NI contributions, which would be paid directly into their new pensions for several years, they were offered 3% of their wages as an incentive. At the same time pensions salesmen were offering what seemed to be huge bonuses for new personal pension holders, usually in the form of a lump sum, which, given the difficulties of the times, was particularly attractive for the low- paid.
Thus began the biggest scandal ever in the insurance industry. In a matter of six years, almost 4 million people opted out of SERPS and another 1 million out of occupational pension funds. Among them were over 1.5 million low-paid workers. Soon these new personal pension holders began to notice the small print in their contracts. For instance that the "bonus" they had been offered as a lure had been taken out of their pension; that the opt-out itself had cost them up to 4% of their total fund; that their future pension could be reduced to nothing by the ups and downs of the Stock Market (there was no guarantee whatsoever of any return) and that so-called "administrative fees" were eating up the small contributions they could afford - in short, that at this rate they were doomed to contribute all their lives to a second pension which might hardly give them a penny's worth in return.
Of course, when the scandal broke out in 1994, forcing the Tory government to open a public enquiry, pensions salesmen were blamed for the mess. But who had written the small print into the pension contracts and paid huge commissions to salesmen if not the pension providers? And who had orchestrated the media campaign in support of personal pensions, if not the government?
In the face of the scandal and to avoid a large-scale shift back into SERPS, the government and the insurance giants agreed to set up a compensation fund partly financed by the industry. Public funds were involved as well, but to what extent still remains a well- guarded secret. The enquiry found 1.4 million cases for which some form of compensation would be needed. And December 1998 was chosen as the deadline for all these cases to be settled. But two years after the deadline, in December last year, the Financial Times reported that over 500,000 cases were still pending.
However, this was not the only scandal of the Tory years. There was also the systematic raiding of occupational pension fund surpluses by large companies. The origin of this scandal was the breach in the rules governing occupational pensions opened by the Tories when they decided that the employers' only statutory duty towards these funds was to ensure that on the basis of the financial market's current performance, they would be able to meet their duty in future. If there was any surplus, it was up to employers to decide what to do with it. Given the on-going rise of the Stock Market at the time, it was easy to make very optimistic estimates on such a basis. And instead of using the estimated surplus to increase current pensions, it was just as easy for employers to decide either to take a "contribution holiday", which many did for years, or even to help themselves from the till. So, for instance, the privatised electricity companies took £1.2bn out of their pension funds, most of which was used to make tens of thousands of workers redundant!
But in the case of this scandal, unlike the so-called "mis- selling" of personal pensions, there were never any public enquiries nor talk of compensation, except in one case - the Maxwell scandal. Given the spectacular collapse of Maxwell's business empire and his subsequent mysterious "suicide", it would have been difficult to hide anyway. Besides, given Maxwell's well-known links with the Labour party, there was political capital for the Tories to make out of his abuse of his employees' pension fund. But even then, the successive governments did not show too much haste in finding a way of compensating the Mirror Group's workers and pensioners. Nearly ten years after Maxwell's death, the DTI has finally completed a report which exposes without any doubt the fact that Maxwell's main business partners - including major banks like Midlands (today's HSBC), NatWest, Lloyds and Goldman Sachs - were aware of his dubious dealings. But there is no question of prosecuting these accomplices, let alone forcing them to pay compensation to Maxwell's victims. Predictably so: neither under the Tories nor under Labour was there ever any question of challenging the right of employers to rip off workers in their own companies.
Blair began preparing his plans for pensions as early as July 1997, only two months after coming into office, by launching his own review of the pension system. He left no doubt as to his objective: as a DSS consultation document produced in November 1997 pointed out, the aim was to reduce the share of the state in pension provision from 60% of the total to 40%. A year later, during the discussion of the government's Green Paper on pensions, Social Security minister Alistair Darling put it even more crudely when he declared in the Commons: "it is my intention to ensure that we amend the system further so that, if people stay in the state system, they will lose money."
Despite his election manifesto's commitment to "retain SERPS for those who wish to remain in it", it was therefore clear that Blair's aim, just as Thatcher's had been, was to run down the state pension system in order to channel the savings made by working people for their old age towards the claws of the finance giants. And his main problem was to overcome the hostility and suspicion generated among workers by the pension mis-selling and other scandals during the Tory era.
It is with this objective in mind that one should look at the new stakeholder pension and the measures which come with it.
For instance, why target stakeholder pensions at earners in the £10,000-20,000 income band? No doubt because due to limited incomes, personal pension schemes have been unaffordable for most so far. But also because over 75% of these workers are also SERPS members and those who will be induced into joining stakeholder schemes will opt out of SERPS at the same time.
In any case, what is this stakeholder pension really about? In short, it is a "cheap" personal money purchase scheme. It is cheap in the sense that contributions can be as low as £20/month. But it is not all that cheap in terms of real cost. The rule is that so-called "administrative costs" must be "at most 1% a year". Indeed at face value, this does not sound exorbitant, or it would not be if the 1% in question was taken out of each year's contribution. But the phrasing is deliberately misleading: in reality this 1% is to be calculated each year on the basis of the total sum accumulated in the pension scheme since it was started. According to calculations made by the National Pensioners' Convention, this means that, at current rates, the pension provider will pocket 25% of all the contributions paid by the holder into his pension over a normal working life!
As to offering any sort of security to future pensioners, the stakeholder pensions certainly do not. Indeed these money- purchase schemes offer no more guarantees than Thatcher's personal pensions as to the final amount of the pension paid. A sharp drop of share prices on the stock market could potentially reduce drastically the value of such pensions. And even if this does not happen, when the time comes to convert the money accumulated in the pension into an annuity at retirement age, low interest rates may well result in a very low pension. In either case the pension holder has no possibility of redress, even if what he gets is much less than what he paid into his pension over his working life. The only thing that is guaranteed is the regular cut that the finance sharks will be able to award themselves year after year, regardless of the ups and downs of the market.
Many of those targeted by stakeholder pensions will be unable to measure the risks involved. Not only do the new pension rules explicitly protect pension providers from the obligation of having to spell out these risks to potential buyers, but they give these companies immunity against any court action on this account. This is a recipe for a re-run of the pension "mis-selling" scandal, except that this time the mis-selling is endorsed in advance by the government itself. If and when tomorrow's pensioners find that their stakeholder pensions are worth nothing, they will have no-one to turn to.
Of course, the government claims that pensioners' interests will be protected by its appointed regulatory body - currently the Personal Investment Authority (PSA).
Yet the catastrophic experience of the railways already showed how useless such bodies are in protecting the interests of ordinary people, due to their primary concern for business interests. In the pension industry there are numerous examples of this as well. For instance there is the case of Equitable Life, the country's third largest and oldest life insurer. Last year, due to mistaken estimates, Equitable Life decided to freeze the funds of most of its policy holders for seven months in order to offset the cost of paying the guaranteed returns it owed to a small minority of better-off customers. This was an outright breach of regulations. Yet the regulatory body, the PSA, did nothing to protect the interests of all policy holders. Given the fact that, ironically, Equitable Life manages the occupational pension fund of the PSA's own staff, not to mention that of the House of Commons, it is obvious that future stakeholder pension members cannot expect any protection from the PSA.
So, far from protecting workers' rights, as the government claims, the stakeholder pension rules only protect the profits of finance companies. No wonder the big finance institutions have all been getting ready for this bonanza. From April 6th, all the main banks and insurance companies will be queuing up to offer their own schemes - in total 26 of them, plus Marks and Spencers the retail chain, Richard Branson's Virgin and the National Farmers' Union mutual fund.
More "independent from the state"?
When Labour got back into office, it was uncertain what the situation would be for future low-paid pensioners. But at least, due to the larger proportion of pensioners still benefiting from occupational pension schemes or SERPS, existing pensioners were slightly better off on average than 18 years before. But only very slightly, as was shown by the fact that in 1998, 65% of all pensioners had an income below the tax threshold, 37% qualified for some form of means-tested benefit and over a quarter earned less than the income support threshold.
True, in April this year, the basic state pension is to be increased by almost 7.5% to £72.50 for a single pensioner - a significant change from last year's insulting 75p upgrading! But then this is election year. And even with this increase, the 1.3m pensioners who have no income other than the basic pension will remain well below the poverty line.
In the name of fighting this endemic poverty, the Labour government has began to introduce a series of complex measures. First, pensioners were removed from Income Support in April 1999 with the introduction of the Minimum Income Guarantee (MIG). This is a means-tested benefit, just like income support, whose value will be uprated in line with average earnings "insofar as resources allow" - which is not much of a commitment. In April this year MIG will be uprated from £78.45 for a single pensioner to £92.15. This may seem like a substantial increase. However, savings above £6,000 will reduce the value of MIG and any money earned above £5/w will be deducted pound for pound. In other words, MIG will really remain what Income Support was - a safety net to prevent pensioners on very low incomes from falling into complete destitution.
The next stage of the reform will come with the introduction of a new Pension Credit in April 2003. This will work in a way similar to the Working Family Tax Credit. According to the figures announced, this tax credit will top the basic state pension and any other private income up to £100/w (the likely equivalent in 2003 of the value of today's MIG), plus a small additional incentive to encourage second pensions. Of course, this tax credit raises the same problems as the Working Family Tax Credit. It includes no provisions for pensioners to retain Housing Benefit and Council Tax rebates so that quite a few may lose out as a result. Besides, being a tax credit, it only benefits those who pay taxes - i.e. a minority among pensioners today - and its complexities make it almost impossible to understand.
As to the future pensions of the low-paid (those whose income is below £10,000/yr), Blair has already announced that from April 2002, SERPS will be replaced with a new Second State Pension (or S2P). Initially S2P pensions will follow the same pattern as SERPS: they will retain an element of proportionality with past earnings while being reduced year after year. Then, in 2007, S2P will become a flat-rate pension like the basic pension. However, unlike SERPS and the basic pension, no credits will be awarded by the state for periods out of work, not even for the registered unemployed or those on long-term sickness. This means that in order to get the full amount of their S2P pension most workers will have to pay contributions for 49 years without interruption regardless of the state of their income. Chances are that very few will manage this.
The implications of this were summarised by the Pension Provisions Group, a body of experts appointed by the government itself. The projections they made showed that on the basis of present government figures the added value of the basic pension and the flat-rate S2P will be well below the 23% of average earnings provided by the basic state pension alone in 1979. And the experts concluded that far from achieving Blair's proclaimed aim - "self-reliance" for pensioners - his reform would increase pensioners' dependence on means-tested benefits. In other words they would become poorer.
The TUC and the pension reform
The government is obviously concerned about the bad name that private pension funds have made for themselves as a result of the pension mis-selling scandal, particularly among workers. This is why Blair has chosen a popular outfit like the Post Office to launch the first officially approved stakeholder pension. But in fact, this pension scheme will be effectively managed by Standard Life, one of the biggest players in the insurance market.
With the same concern in mind, Blair invited so-called "membership" organisations to launch such schemes. Predictably he got an enthusiastic response from the TUC, whose leader, John Monks' responded to the government's first legislation on pensions, in November 1999, in the following terms: "We warmly welcome the government's proposals on pensions reform - too few people are saving enough for their retirement. But we want to make sure that those in work today have the best opportunity to save for an adequate retirement. That is why we think employees with occupational pensions should also have access to the stakeholder schemes so they can build up bigger benefits in a cost effective way(..) Properly set up, they represent a real opportunity for millions of working people to save for a decent pension. And unions could have a key role to play in providing the stakeholder scheme. They could play a part in delivering valuable services to union members, adding value to the union card, providing modern and much needed services for the 21st century workforce."
So after package holidays and mortgages, stakeholder pensions are going to be promoted in union journals. Already the engineering union AEEU has set up its own scheme managed by Friends Provident, and so has the media union BECTU, while others are preparing their own launchings.
The union leaders' disregard for the collective interests of the working class as a whole - including its most basic attribute, working class solidarity - and their willingness to push workers into the claws of the City is not new, of course. After all, the union machineries were, and still are the keenest supporters of occupational schemes. And although these schemes were not originally managed by financial institutions, they were based on the same principle as personal pension schemes, in that they relied on the financial markets to cater for the needs of pensioners rather than on the solidarity between generations.
Having been pushed aside from the running of a large number of occupational pension schemes under the previous Tory governments, union leaders are keen to make a comeback in the pension field through the new schemes. Indeed, in this way, they can hope to raise their profile among business circles, secure positions in the many administrative and regulating bodies of the pension industry and, generally speaking, increase their social influence without having to rely for this on the consciousness and militancy of their members - which they fear more than anything else.
Can't society afford to support its seniors?
During the review process in 1997-99, the government explicitly dismissed the idea that stakeholder pensions should provide guaranteed benefits on the ground that this would make them "too expensive" for workers, given the cost of the insurance policies required.
The same reasoning, however, should have led Blair's ministers to consider the extortionate 25% of contributions to be pocketed by pension providers as "too expensive". And since the only justification for this "administrative cost" was the need to gamble with pension money on the Stock Market in order to increase its value, there was only one possible conclusion - that all pension contributions should be put into the National Insurance fund, which would then be able to provide decent pensions for all pensioners today, without having to rely on costly and unpredictable financial speculation.
Of course, the main objection to such an obvious conclusion today is that sooner or later the proportion of active workers compared to pensioners will become too small to enable the former to support the latter. Therefore workers have to save during their entire lives in order to build up enough cash to pay for their old age. Such is the official wisdom among politicians, business circles and economic commentators.
However, the figures on which this argument is based simply do not add up. According to official statistics, in the twenty years between 1971 and 1991, the size of the population of working age relative to the population aged 65 and over decreased by 15%. However the pension system did not collapse and most of its provisions remained based on the state contribution-based system. In the twenty years between 1991 and 2011, the decrease is expected to be 11% - significantly less. Why on earth then should the pension system be more in danger today than it was in the previous two decades?
Underlying the official argument is the assumption that somehow a reduced active population (compared to the number of pensioners) generates less wealth and therefore cannot cater for increasing needs. But for more than two decades haven't we heard again and again ministers boasting of the "growth" of the British economy - as if this was the result of their policy and not that of the labour of millions of active workers? Indeed despite all the talk about Britain's "low productivity", workers' productivity has increased a lot faster than their numbers have shrunk. Take any of the major industries. In car manufacturing, for instance, numbers have shrunk significantly over the past two decades, but the number of cars produced kept increasing. Otherwise how would companies and shareholders have been able to increase their profits on such a scale? Sitting in board meetings does not produce wealth, does it?
The truth is that despite its smaller size, the working class produces a lot more wealth today than it did twenty or forty years ago. So why can't this wealth be used to provide a decent living to a rising number of pensioners?
Of course, there can be one - and only one - possible reason. But it has nothing to do with demographic constraints. This reason has to be the determination of the capitalist class (and its politicians) to increase their share of the wealth produced in society. Indeed, this is exactly what they have done over the past two decades, by reducing the standard of living of working people, forcing the unemployed into casual labour and running down public services, while at the same time cutting the taxes paid by the wealthy. And Blair's plan for workers' pensions has exactly the same objective, by handing over part of the income of the working class to the City, instead of using it to pay decent pensions.
So, yes, if the capitalists are allowed to get away with such attacks, the working class's share of the wealth it produces may become too small to cater for the needs of its pensioners. But there is nothing inevitable about this. And rather than allowing their old age to be subjected to the irrational hiccups of the stock market and the greed of the City sharks, workers would have everything to gain by placing their bet on their ability to fight back against these attacks, using the weapons of the class struggle.
3rd March 2001