For more than two decades, the capitalist class and their politicians, whether Tory or Labour, have been looking for ways to make the working class pay more for lower pensions, thereby reducing labour costs for employers, while squeezing more profits out of the pension system for the so-called finance "industry".
So pensions in all their aspects have been under sustained attack for a very long time. The outbreak of the economic crisis in 2007/8 may have temporarily suspended these attacks, partly because a lot of other attacks on workers' conditions took priority, and partly because, a year or two ago, it may have been hard to justify handing greater control of the pensions system to finance capitalists whose reputations and credit had just crashed and who were being revived by a drip-feed of public funds.
However, the government and at least some of its advisors judge that they now have a period of respite and so have decided to resume these attacks (even if the banking debacle in Ireland proves otherwise). Con-Dem ministers are duly rushing through new measures - piling one on top of the other - which affect both the public and private sectors, to make up for lost time.
After a long build-up of attacks on pensions, these latest measures are really the last straw as far as many workers are concerned. They are rightly very angry and this anger has put pressure on union leaderships to organise some resistance.
But, in fact, these attacks on pensions, which target all categories of workers, private and public, in every industry, should really raise the need for a united response across the working class, behind the demand that the capitalist class should pay for "living pensions" out of their accumulated profits.
Jumping for the government's bait
Most workers in the private sector do not have occupational pension schemes at all and would have to save their own pension "pot" in order to have a pension on retirement, which few manage to do.
Of the estimated 23m private sector workers, the National Association of Pension Funds (NAPF) gives figures of just 2.3m in defined benefit (DB) schemes - that is 10% (compared to 5m in the public sector's DB schemes - 80%). But those occupational pension schemes which still exist in the private sector include the large battalions of car workers, as well as ex-public sector workers, like those of what used to be British gas, electricity, telecoms, steel, etc., and others, such as workers employed by Babcock in British dockyards.
It is these DB schemes which are often referred to as "gold plated" because they base retirement wages on a pre-defined amount which is guaranteed to retirees by the employer and calculated as a percentage of the final salary they receive.
Of course, how much gold plating there is for a worker whose final wage is very low, is another question, as only a fraction of this will be received as a pension when he or she is no longer able to work. Low wages under this system mean low pensions - and if these are the "best" pensions on offer, this is just another indictment of the system.
And indeed, these DB schemes arebetter than those schemes which are now the norm, including the so-called defined contribution (DC) schemes - which do not guarantee any definite retirement wage, taking a defined amount of contributions from active workers every week or month, and relying on the financial markets to dictate the level of pension paid in the future.
Over the past 10 years, 77% of final salary (DB) schemes were closed to new members. Some schemes have even been closed altogether - 17% closed in 2010. Yet they still manage a total of £900bn in their funds, compared to the DC schemes, which today control £500bn
One can say that DB schemes have disappeared largely because of employers' reluctance to pay for the consequences of their own greed. By creaming schemes' "surpluses" in the days when there was one, as well as taking pension contribution holidays, companies depleted their pension schemes. Then came the crisis, with the collapse of stock and financial markets which reduced the schemes' value, while job cuts reduced their regular inflow from pension contributions. As a result black holes developed in the DB schemes, which the bosses had the statutory obligation to plug - although, of course, with the utmost reluctance.
This is where the Con-Dems come in, by promoting ways companies could use, in order to reduce the cost of paying for their past greed. This result is meant to be achieved, by resorting to a trick already used to cut the cost of welfare benefits to the state, on claimants' backs. It involves changing, from 1st April, the statutory minimum increase which is meant to be applied to pensions every year: instead of being set according to the Retail Price Index (RPI), it is set according to the Consumer Price Index (CPI, which, unlike RPI, does not take housing costs into account), currently at 4.3% compared to 5.3% for the RPI. Companies are then encouraged to adopt a range of measures designed to draw as much benefit from this change as possible.
These potential benefits were spelt out in an "impact assessment" provided by the Department of Works and Pensions (amended in February this year) which said: "the impact of this policy is to change the expected value of pension liabilities of providers of private sector defined benefit occupational schemes. This effect takes place immediately in respect of the accrued liabilities (i.e., the obligations to pay future pensions) that firms have already built up. In the short term there will also be an effect of a reduced value of pension accruals because the additional pension liabilities sponsors build up that year will be uprated by CPI rather than RPI.
That is, those private DB schemes which do not specify the RPI or other indexing measures for pension increments, or for estimating their liabilities, stand to gain, since pension increments, future estimated liabilities and, therefore, the schemes' black holes, will be automatically reduced, quite legally, by the sleight of hand of switching from RPI to CPI. And never mind the fact that this will also reduce pensions for retirees - who were promised higher increases when they joined their pension schemes - as if pensioners were not affected by rising housing costs as much as everyone else! This could mean a 15-20% loss in the purchasing power of pensions over the next 20 years.
To illustrate this there is the case of BT - which said that the switch to CPI indexation has reduced its pension deficit from £7.9bn to £5.2bn. This will allow it to reduce its planned 17-year deficit reduction payments. As for BT's 226,000 pension scheme members who will "also" experience reduced payments, they are no doubt expected to applaud the rise in the company's share price which accompanied its government-granted "good fortune". However, the only thing the CWU's telecoms official found to say about this attack, was to express his "disappointment".
The DWP document quote above adds that: "Long term it is expected that companies, individuals, and unions take account of the impact of this change to CPI] in future negotiations about pay and terms, and once labour markets have had time to adjust, there will be no further impact."So what the government is really suggesting is not just that pension increments should be aligned to CPI - that is, the statutory minimum - but that, in addition, wage increases should also be capped at CPI level! Not only would this reduce wage increases, but it would also reduce the pensions which are calculated on these wages, and therefore pension liabilities. And by the time everything is linked to CPI, the unions will no longer be able to argue that active workers and retirees are not being treated on an equal footing. It's a bit like saying that when everyone is without shoes, nobody need complain about being barefoot!
It is, however, important to point out that the government's encouragement to private companies to keep pension increments to the minimum CPI indexation is merely an option and the government itself has no powers at all to set such measures. But it certainly wants to sound as if it had such powers. Which is ironical coming from a government which is so hell-bent on "burning" regulations - except, apparently, those which can help to reduce the income of the working class and boost the bosses' profits!
As for companies, of course they do not have to follow the government's advice. And whether they do or not, is rather down to the balance of forces between them and their workforces - who have every reason to fight any degradation of wages and of pensions, now and in the future. And that is the big hitch in these rosy prospects for the bosses which the government has just outlined.
The case of Ford
In fact this is the problem which is already being raised at the Ford Motor Company. Workers at Ford have a final salary, DB scheme. In 2006, new entrants were told they could either join it and pay 8% rather than the 6% existing workers paid in contributions, or they could instead join a defined contribution scheme. Ford has long complained of a deficit in its pension fund, which it agreed to make up under a deficit recovery plan, during the last pay round in 2008, when a 3-year pay deal was agreed. It has used this excuse in a continual effort to attempt to cut pension costs, never mind the fact that most of Ford's manual workforce are so worn out at the end of their working lives that only a small number has any substantial post-retirement life during which to claim their due in pension payments!
It is traditional at Ford that pensions and other terms and conditions, which are part of national collective agreements with the unions, are considered as a "package" during pay bargaining. And it is this year that a new round of pay talks is due, to renew the "package", that is, the collective employment contract for all Ford workers in Britain.
In anticipation of this, Ford raised its decision to change its pension uprating calculation to the CPI, at the Ford National Joint Negotiating Committee meeting in February. It told union officials that it "had" to do this, under compulsion from government legislation.
In fact, the Pension Trustees calculated that the change to CPI would reduce Ford's liabilities by £240m - which would be equivalent to 31 months payments by Ford into its deficit reduction recovery plan!
As to the claim by Ford that it is under compulsion from government to make the switch, this is nonsense. It is true that the Trust Deed for Ford pensions refers to government legislation for the "statutory minimum index" to be used for calculating the different applicable pension increases, rather than specifying the RPI. But up until now, of course, increases were actually calculated based on the RPI.
After taking legal advice, the Pension Trustees wrote to Ford, asking it to change the rules of the scheme so that the indexation on the RPI could be specified, thus avoiding a fall in the value of workers' pensions. But Ford refused, saying that its agreement with the Trustees in 1997 linking increases to the "statutory limited price indexation (LPI)" made it perfectly legal for it to implement this pension cut, according to its own advisors, and that it would thus be doing so.
A newsletter (issue number1) distributed by the shop strewards' committees in Dagenham informed the workforce : "At the moment Ford pensions go up by the RPI measure but from April, unless Ford makes a straightforward administrative change to the pension scheme, pensions will only go up by the lower CPI measure of inflation. This would save Ford over £400m at our expense and the expense of Ford pensioners."The union officials then did something which is somewhat unprecedented - at least for the last couple of decades! They suspended all talks with Ford. On the 23 February they declared that a ballot for industrial action over pensions would be carried out.
There is a little more to this than meets the eye, and it is still not certain that there will even be a ballot. At present the unions involved have launched a 6-week check of their membership databases to ensure that these are up to date, prior to any vote being organised, on the grounds that companies are more and more seeking injunctions to prevent strike action on the basis of faulty union membership lists. But as workers have observed, surely these lists should be kept up to date as a routine and anyway why should it take six weeks to verify them?
What will happen next at Ford remains to be seen. In fact for the purposes of discussing what the company intends to do to avoid a strike, the union officials have "suspended their suspension" of talks, and have had at least one meeting with Ford so far, on 16 March, with another scheduled for the first week of April.
As usual, they are not informing workers on the ground about any details of these talks, so rumours have been rife of attempts to split the active workforce from the retirees by offering large lump sum compensatory payments (said to be £4-6,000) to the active workers - who number around 11,000 at present in total, while there are around 30,000 current pensioners.
So far the union officials have agreed nothing. But neither have they attempted to mobilise any kind of action to build up to a strike or even to mount pressure on Ford while bargaining goes on. It was thanks to the effort of one or two union officials and retired ex-officials that a lobby of pensioners of the 16 March talks at the Ford HQ in Warley took place - when a vocal contingent even came up from Southampton - but few workers from the Ford Dagenham estate, just down the road, even knew about it! One positive thing is that the very active group of Visteon workers (who were formerly Ford workers before Visteon was "spun off" by Ford in 2000 and who lost their pensions when Visteon declared bankruptcy in 2009) may now be reinforced in their campaign for Ford to pay up, since Ford's own workforce now faces an attack on pensions!
There is a further corollary to the Ford workers' strike threat. The union officials involved in the negotiating committee have separated the pensions issue off from the wage negotiations, arguing that they are thus avoiding a trap that Ford laid for them. Apparently Ford was expecting the de facto pensions cut to be part of the usual "package" to be negotiated in October/November. The unions say that by separating the issue off from pay it prevents them from being tied to future wage rises linked to the CPI! But of course it prevents nothing of the sort, given that they are under no compulsion to agree anything at all. And they are certainly not obliged to accept wage rises linked to CPI at any time! That said, Ford workers know from experience that they would do well to take care of these struggles over pensions and wages themselves, if they want to avoid yet another "surprise" deal being stitched up behind their backs.
Manufacturing "envy" where it never existed
Public sector workers, of course, have been and are, in the government's firing line in every sense - whether it be with regard to their jobs, wages, pensions, or redundancy payments. And on top of this, they are targeted by the on-going vicious campaign over their so-called "gold-plated" pensions funded by the "taxpayer". No matter that more than half of these workers - who provide all the services vitally needed by "taxpayers" - will get pensions barely above the state minimum pension, between £4,000 and £5,000 a year! In fact in local government the average pension for women is as low as £2,800, and so most they must rely on means-tested welfare to top these pittances up!
But never mind, these miserly pensions are still too high, apparently. Already, the DB schemes in the public sector have been cut in several ways. For instance in 2007, Labour closed the Civil Service scheme to new entrants. For teachers, retirement age was increased to 65 for those joining after 2007. Now comes another round of attacks, first initiated under the past Labour administration. It comes in the form of the report published on 10 March by the so-called "Independent Commission into Public Sector Pensions", under "Lord" Hutton, who was both a minister for Work and Pensions and a business secretary in the Labour government. The Con-Dems, to whom Hutton was delighted to offer his services, will decide which parts of his review to adopt and which parts to reject (if any) - by sometime this summer. Most of the measures are expected to be implemented by the end of this parliament - that is 2015.
Hutton's starting point was that the final salary schemes in the public sector - including those for teachers, civil servants, the NHS, local government, police, armed forces and the judiciary, were all "fundamentally unfair" when compared to private sector schemes.
The fact that it is bosses in the private sector who fail to provide decent pension schemes, or even proper employment contracts, for that matter, and that they have been running down existing pension provisions over the past years, is quite besides the point. Instead, for the sake of Hutton's argument, the world is turned on its head. Instead of the state imposing on the bosses the provision of the pensions they owe to their workers, the public sector "has to" align its provisions (downward!) with those offered by scrooge capitalists! Instead of being posed in terms of what pensioners need in order to live decently, the problem of public sector pensions is posed in terms of the interests of the state as employer - and it is presented as coinciding with "taxpayers' interests".
Therefore the "solution" is posed as a "deal between the public sector workers and the taxpayers". Not that the "taxpayer" has been consulted over this! As Hutton explains: "These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs" Except, of course, that cutting already bad pensions can hardly make them "good"!
Apparently public service pension schemes as a whole paid out £32 billion in 2008-9. This is roughly equivalent to the defence budget, we are told. But the obvious conclusion - that the defence budget should be slashed and used to pay higher pensions and benefits - is not drawn from that! No, Hutton claims this is far too much and needs to be reduced, while admitting that in fact this cost will be coming down over the next few years anyway.
This cost reduction will be achieved, firstly, by increasing from next year employee contributions by 3% (from 6% to 9% for instance) which should save £2.8bn. Ultimately contributions are meant to increase by more than 50% - taking a newly qualified teacher's monthly contribution, for instance, to £60 per month.
Secondly, public pension costs will be reduced by tagging their annual increment to the CPI instead of the RPI, which is meant to save £6bn a year.
Another important cost-reducing change is that retirement age is to be increased, where it is still 60 in some schemes, in line with the increase in the state pension age, that is, to 65 by 2018 and 66 years by 2020. The exceptions to this are the armed forces, firefighters and police, where it will be increased from 55 years to 60.
However, the main recommendation of this review is to end public sector final salary (DB) schemes! These will be replaced by a "career average scheme", which pays out a pension based on a percentage of the average pay received annually, throughout a working career - something which has already happened in several public sector organisations, such as Royal Mail. This would reduce pensions, full stop. It will make them even more inadequate for the majority of public sector workers.
One might well ask why MPs' pensions were excluded from Hutton's review. These are known to be the most generous of all in the public sector, with an MP with 15 years dubious "service" being able to claim a pension of £24,000. The truth of the matter is that a review of MPs' pensions by the Senior Salaries Review Board had been planned under Brown's Labour government, with the aim of ending their present scheme. It was to be replaced by a career average or a DC scheme, but so far this plan has been allowed to lapse, with new MPs being invited to join the defined benefit scheme and everything being put off until "after Hutton"! No surprise there.
Wages fit for retirement!
Finally, it is necessary to mention the plans this government has for state pensions, at least for now. They will not be "cut" by the switch to CPI upgrading, which has been explicitly excluded! However the Work and Pensions secretary, Ian Duncan-Smith wants to "simplify" matters, in addition to increasing retirement age to 66 years by 2020.
It is true that payments are based on a complicated system of top-ups for the very many people who do not qualify for the state pension in full. This is because, up until April 2010, in order to qualify for the basic state pension, 44 years of national insurance contribution were necessary for men and 39 for women. Since then the limit was reduced to 30 years. For at least the last 3 decades, it would have been extremely difficult for a significant number of workers, whether male or female, to achieve even 30 years of contributions - and obviously out of the question for women who have children!
As for the present rate - it is hardly enough to live on, of course, at £97.65 per week for a single person, which has to be topped up to £132.60 for a pensioner to get the "minimum income guarantee" (or pension credit). For couples, this top up gives a total of £202.40 per week.
So Duncan-Smith wishes to introduce a universal pension of £140 per week which is not based on contributions. However this is still in the "planning stages" and no-one can be sure as to what will happen to it. Pensioners' groups have warned, however, that due to the different way the state basic pension is being taxed, compared to the other two state pensions, this may not always result in a net income increase.
Today's attacks on pensions are part of the general offensive of the capitalist class against workers. Ultimately this is an attack on wages. The less workers get, the more the capitalists profit - it is the simple and most fundamental class antagonism built into the economic system under which we live!
This attack hits both private sector and public sector workers. It may appear to be aimed at one section rather than another. But this is just smoke and mirrors. The wage freezes, the wage cuts even, which have been experienced in the car industry are no different from the wage freeze among civil servants, local government workers, or nurses. All of these reduce the cost of workers to the capitalists, cut the wage bill, and increase profits, whether directly or indirectly.
Savings made in the public sector are handed back to the capitalist class in the form of tax allowances, cuts in corporation tax and other give-aways. So while their exploitation of the public purse may seem less direct than their exploitation of workers in factories for instance, it is just the same, in effect. And this is what exposes the nonsense about pensions being unaffordable.
Of course, there should be a universal pension allowing all workers to retire when they need to and still have a decent life - instead of facing the "choice" between an old age in poverty and being forced to work into their late 60s, as is increasingly the case today!
But there is no reason for this universal pension to be paid out of workers' wages, whether directly or through taxation. With the enormous increase in productivity of the past decades, colossal profits have been accumulated by the capitalist class out of the labour of the working class and this is where workers' retirement wages should come from, including those of public sector workers. After all, who are the main beneficiaries of the public sector, who makes profits out of public services, if not the capitalist class? Education supplies them with a regular flow of educated workers, with all kinds of skills - for free. The NHS ensures that their workforce remains healthy - for free. State rail and road maintenance allows their workers to get to work - for free. The examples are endless. And on top of all this, private bosses still manage to make yet more profits out of public services, thanks to the various forms of sub-contracting.
Yes, a "living" retirement wage for all pensioners, funded collectively by the capitalist class, through a special tax on the wealth and income of all companies and shareholders, is an objective which could unite the ranks of all workers, resolve the problem of pension poverty and deal once and for all, with all attempts to set private sector workers against public sector workers.
In the face of the attacks on pensions, union leaders are even raising the prospect of strikes. There have been one-day sectional actions by university and college lecturers and a "million strong strike" across the public sector has even been mentioned. In the best of cases such action might result in some temporary concessions for one or more sections, but this will not provide a solution for the working class as a whole. Would it not make more sense, given that both public and private sector workers are confronting similar attacks, for the pensions issue to be raised as a problem of social organisation, which it is, and for it to be dealt with through collective action on the scale of the whole working class, behind the common objective of a proper retirement wage?