"When the stock market was booming, employers took contributions holidays worth more than £18 billion. Now the boom is over, holes are appearing in pension funds" according to the TUC. And companies don't seem keen to put the money back in.
A recent TUC report has blown the gaff on what employers are trying to do. It's not a great surprise. They want the workers to pay for the cost of the current crisis and prop up profits by cutting back on their pensions.
In their factsheet, Pensions in Crisis, the TUC points out that many employers are closing good final salary related pension schemes and that "It's the first serious attempt to cut pay and conditions since the Second World War."
Where workers have fought through trade unions for decent pay and conditions over many years and won decent pension contracts, these are now under severe threat.
Recent accounting regulations meant that employers had to show whether pension schemes contained enough money to pay out what was due for pensions. With recent stock market falls, many schemes were in a bad state and even most of the top FTSE-100 companies could not meet pension liabilities.
This could upset shareholders, by causing share prices to fall - so the obvious solution was to close the pension schemes - first to new employees and sometimes to everyone. Nissan has closed its scheme, which was £121m short - or an average of £22,000 per worker.
When employers close the 'final salary' schemes, which link pensions to pay and the number of years worked with the firm, they offer new schemes that limit the amount bosses have to pay in. They have already saved about £4 billion in contributions. They're also, the TUC says: "transferring all the risk of stock market ups and downs onto employees."
New government plans to insure schemes and limit pension increases are not the answer - and could make more schemes close.
As pensions expert Ros Altmann has explained: "Even fully solvent employers can just decide to wind up their pension schemes."
Leaking Pension Pots
Perhaps Robert Maxwell's greatest gift to the Labour movement was to instil a healthy cynicism about employers looking after pension schemes. The Tories passed the 1995 Pensions Act, which did nothing to really address the problem and set up the Occupational Pensions Regulatory Authority, which never seems to have used its extensive powers.
It did nothing for people like workers from Allied Steel and Wire (ASW) in Sheerness, Kent which went bust last July. With insolvent companies, retired workers pensions are protected, but those still working are just another creditor for the company and can see their entire pensions disappear.
More than 500 workers from ASW marched to Downing Street in June to protest. BBC News featured John Hayter, aged 59, who lost 90% of his pension, only three years from retirement. He had saved in the company scheme for 28 years but said: "We will have to sell up and move to a cheaper area, away from our family, friends and grandchildren . . to raise capital which we will have to survive on somehow."
In other cases, already highly-paid executives walk away with the lion's share of the pot - leaving little for most of the workers. Another problem is that less people work for companies that provide any kind of pension contribution from employers. The TUC says that there are two million less workers in final salary schemes today than in 1995, and in the private sector, four out of five workers do not belong to a final salary scheme.
Stakeholder Pensions
One bright idea was to start stakeholder pensions, which were meant to be cheap and simple for the lower-paid to understand. Even small employers had to set them up - but they did not have to contribute. At least 10,000 firms have defied the law and not set up schemes - although none has yet been fined the £50,000 penalty.
The vast majority of firms do not contribute, so there is little encouragement for workers to save. Most simply can't afford to. Even where employers do contribute, their generosity is pitiful. The average employer contribution to a stakeholder pension is only about £25 a month - 1.25% of the average UK full-time salary.
What a state!
The good news is that people are living longer. The bad news is that means we need more money to provide for that longer life. So "people need a bigger pensions pot to provide a decent pension. Men need around £180,000 savings at 60 to get a £10,000 a year pension, while women need £210,000. These figures have gone up by 40% since 1994."
Experts say you have to save 15% of your pay from your 20s to guarantee a decent pension. That means £1 in every £6 you earn. But with student debt, sky-high property prices and other costs, few can manage it. But if you don't start until you are 40 then you need to save £1 in every £4.
Apart from the sheer difficulty of finding the money, many people don't trust pensions after all the mis-selling scandals - and recent losses don't give workers any confidence in the stock market. Both major political parties want to reduce the proportion of pension income provided by government from an average of 60p in the pound to 40p.
The state retirement pension is now linked to price rises. It used to be linked to rises in earnings. As earnings go up faster, it means that by 2020 the state pension will be worth only 10% of average earnings. That would make today's pension only £56. (Before the Conservatives scrapped the link it was worth 20% of earnings.)
European Links
The European Union has looked at the facts - especially as many countries like France, Germany, Italy and Spain have much more generous pensions than the UK state pension.
The European Commission Social Agenda journal of April 2003 explains that the ratio of people over 65 to those of working age is set to double by 2050. "Public spending on pensions is expected to rise by a third from 10% of EU production [GDP] to 13.6% in 2040."
The solution to the problem of the 'demographic time bomb', where a greater proportion of the population will be retired compared to the numbers employed, was obvious to them: extend working lives by five years - right across Europe. Then they realised they could save even more by cutting pension benefits.
"Keeping more people in employment for longer is a must. . .people will be able to decide for themselves whether they want to work a few years longer in order to achieve the same pension level as today, or retire at the same age as today, but in exchange for a reduced monthly pension." (Social Agenda, April 2003) What a choice!
The report ends encouragingly - with some remarks that our Government has taken to heart and published in the British press, too: "Large numbers of people in the 60s and even 70s will, on the whole, be physically fit, healthy and capable of living very active lives - at all levels, including professionally."
The World Bank has now turned its attention to Europe. The International Confederation of Free Trade Unions says that the Bank has just published a report on "Pension Reform in Europe", which "asserts that countries of western Europe have no choice but to carry out massive reforms involving increased retirement ages, reduced benefits, and partial privatisation." (And our Government has ominously just appointed Nicholas Stern, the World Bank's Chief Economist to a senior job at the Treasury.)
Workers in Europe have already been taking action to protect their hard-won benefits. There have been massive strikes in country after country.
Labour Research (June 2003) details some of the campaigns: Austria 500,000 went on strike and 200,000 marched in Vienna. The Government planned to reduce the pension basis from the best 15 years' earnings, to the average over 40 years, with a full pension after 45 years - instead of 40 as at present.
The OGB trade union federation estimated that the cuts would be 13% in the short term and up to 40% long-term. Union protests have put introducing the cuts in doubt.
In Germany the unions are campaigning against the Government's 'Agenda 2010' programme, which plans to increase retirement age from 65 to 67. In Italy a general strike is threatened over pensions where the Government is lowering employer contributions. They also want to cut pensions for those retiring before 65 with incentives to work longer. In 1994, a general strike and mass demonstrations over pensions led to the fall of the first Berlusconi government. In France, 1.2million protested against the governments planed pension cuts and concessions have been agreed. By 2008, those with a full contribution record will retire on at least 85% of the National Minimum Wage.
Even young workers, who in the past weren't interested in pensions, care about them now. They are coming to realise why the trade union movement has always regarded pensions as deferred wages. Just as when a wage cut is threatened - we won't give up without a fight!
- The TUC should co-ordinate action by unions in this country, in concert
with those across the European Union, against planned cuts in workers' pensions
- The Government should guarantee a decent standard of living for all retired
people - without means testing.
- Employers contributions should be made compulsory and workers' savings for
retirement protected against company bankruptcy and fraud.
- The Government should nationalise the financial institutions and use the funds
to invest in decent rail and road transport and public services and to
revitalise industry.
July 2003.