Tax the rich to pay for pensions!

Submitted by Anon on 22 March, 2005 - 12:58

By Martin Thomas

On 23 March, and maybe on 26 April, public sector workers will be striking against the New Labour government’s move to “level down” their pensions nearer to the misery already enforced in the private sector. The civil servants’ union PCS and local government members of the public service union Unison and other unions have all returned ballot majorities for a strike on 23 March. The teachers’ union NUT is balloting for a strike on 26 April, and has approached other education unions to join it on that day.

Details vary from one part of the public sector to another, but the Government plans to increase the pension age, sometimes increase workers’ pension contributions, and erode “final salary” schemes.

The unions’ first concern is to defend existing provision. But the fight can and should be broader than that.

The broader, the greater its chances of success even in its defensive aims.

The government’s move to “level down” public sector pensions towards private-sector levels is not an incidental whim, easily reversed with a little pressure. It is a basic strategic move, copying similar moves in other European states, and not opposed in fundamentals by the Tories or the Lib Dems.

At present, public sector workers get 17% of total wages in Britain, but 36% of total pension rights, i.e. the average public sector worker has a pension entitlement 2.6 times as big as the average private-sector worker.

That has come about through the drastic erosion of private-sector pensions and the state pension. Judges managed to preserve their luxurious pensions by threatening to “strike”, but for public sector workers generally, a focus only on defending an island of better provision when all around it has been eroded is unlikely to succeed. The labour movement needs a strategy to “level up”.

First we have to unite public sector workers. Local union branches in the different sectors should get together, uniting with each other and with pensioners’ groups, and not just wait on the success or otherwise of top-level haggling between the union leaders.

And pensions are an issue for the whole working class.

The UK’s pension fund bosses control around £1000 billion. Meanwhile the basic state pension has been progressively run down so that today, at £79.60 per week, it is only 15% of average earnings. On present trends it will be down to 10% of average earnings by 2020.

The New Labour government’s latest effort to patch up the scandal, the means-tested Pension Credit, sets a floor income of £105.45 for pensions, about 20% of average earnings. Even the end-of-welfare USA has a basic state pension at 25% of average earnings.

Nearly two-thirds of the UK’s top pension funds have closed their final-salary pension schemes to new employees. Once a company has succeeded in dividing workers in this way, it becomes easier for it to worsen conditions for the “lucky” older workers still in the final-salary schemes.

The older pension schemes guaranteed workers a pension at a level tied to their wage in their last years before retirement. The newer ones are “defined-contribution”. Workers have to pay in just the same. Employers pay in much less. The pension you get at the end is not guaranteed, but depends on the fortunes of the stock market. In other words, the workers bear the risk, not the bosses.

Employers often used to contribute 12–16% of salary to Defined Benefit schemes but usually opt for only three to six per cent for today’s DC schemes.

The message of the new global free-market capitalism to us all is: find some financial scheme or manoeuvre to save for retirement, and hope it doesn’t go bad as so many others have — or rot in poverty when you grow old.

Pensions are not decreasing across the board. Rather, inequality is rising, and is set to rise, even faster among the retired than among people of working age. A well-off minority retire in good health, sometimes with an income not far off what they received when they had greater expenses. They can enjoy themselves, travel, and help their grandchildren pay university fees or buy their first house.

A larger number retire in poverty and, often, in poorer health because of the harder jobs they have done. All they can do on their pensions is survive. They watch their grandchildren struggle in SATs-ed and Ofsted-ed schools, lacking in qualified teachers, through to jobs in McDonald’s.

One pensioner in six retires on more than £400 a week. At the other end of the school, nearly one quarter of single pensioners are on, or below, the Pension Credit baseline.

The options for workers now are: a dwindling state pension; dubious and risky personal pensions, which many workers cannot afford anyway; or the relatively secure final-salary schemes of big employers, which have never been available to more than a minority, and are now being torched.

This chaos makes sense for some. The steady rise of ever-larger pension funds has been a major motor in the reshaping of global capitalism over the last twenty or so years.

Larger and larger flows of cash circulate around the stock markets and the foreign exchange markets. The system becomes more and more finance-centred, more and more geared to short-term profits, dividend payouts, and share prices above all else.

Privatisation and the cutting of top tax rates are part of the same development. There are huge vested interests tied up in it, making huge profits from the commissions, fees, bonuses, and speculative gains they siphon out of the “casino economy”.

The unions should fight against this system, and for an alternative of democratic social provision.

They should fight for a workers’ government — a government based on and accountable to the labour movement. A workers’ government should take all the pension funds into public ownership — without compensation to the financiers — and put them under the democratic control of the workers who pay into them and the pensioners who depend on them. It should tax the rich and big business as much as is necessary to level up pension provision with a proper guaranteed minimum.

Strategically, the best way to do that would be through a levy on profits which obliges companies to issue new shares each year and put them into socially-controlled pension funds. That way is more secure than payroll taxes; avoids giving employers a direct incentive to cut jobs; and gives the socially-controlled funds leverage over capital.

That requires political action, on a much bolder scale than the tentative new gestures from some union leaders recently.

In summer 2004 the “big four” unions adopted proposals for what they wanted to see in Labour’s next manifesto. The proposals including “a new compulsory pension scheme for all — with employer contributions of at least ten per cent”, and restoration of the earnings link for the state pension.

Those demands would be progress, even though they evaded any direct confrontation with high finance. However, they were… “private and confidential”! They were the union leaders’ agenda for haggling with the top Labour leadership, not a manifesto for mobilising the union ranks.

They have been dropped since the union leaders made the “Warwick Agreement” with Blair and Brown in July 2004, even though that “Warwick Agreement” conceded nothing on pensions and not much on anything else.

The AWL is working within the trade unions and in electoral politics to establish a clear socialist alternative, and to rally the unions for a battles within the Labour structures to break them from Blair-Brownism; to fight for policies like repeal of the anti-union laws, taxing the rich, and decent pensions for all; and to mobilise the forces which can create a workers’ government.

  • Plan now for further action after 23 March and 16 April.
  • Build unity — across all parts of the public sector, and then across the whole working class.
  • Make the union leaders fight — at least for their own stated policy for a decent pension scheme for all with mandatory employer contributions. Make them put pensions on the agenda at Labour Party conference later this year.
  • Turn round the unions to fight for a workers’ government that will take the pension funds into public ownership and “level up” pension provision for workers.

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