Bust the myths: six reasons to support the pensions strike

This week will see a wave of strikes across Manchester and the country as thousands of teachers, lecturers and civil servants take part in strikes called in opposition to pension reforms and the government’s austerity drive. Not sure whether you are going to join them, whether you agree or even what’s wrong with the government’s proposals? Andy Bowman outlines some of the myths about the reforms, and explains why the government’s attack on public pensions needs to be resisted.

Submitted by Django on June 29, 2011

Republished from Mule.

The UK has some of the worst pension schemes in the western world, yet the government and media have whipped up an atmosphere of hostility to the June 30 strikes over proposals to increase to the retirement age, the amount workers have to pay from their wages into their pensions, and the basing of their payouts on career average wages rather than final salaries.

The Tories and the media claim that the reforms are fair and necessary, and that public sector workers possess pensions that are so generous they will grow out of control as the population ages. Is any of this true? Of course not. Read on for a useful guide that’ll bust the lies and spin, and may come in handy next time you meet a deranged Daily Mail reader. And if you end up convinced, why not join a picket or go on a march this Thursday?

Myth: Public sector pensions are “gold plated”
Fact: UK public sector pensions are among the lowest in the Western world

Despite having a higher than average level of wealth, and higher than average number of elderly, the UK government spends well below the average for industrialised nations on pensions. In fact, the UK has the fourth highest levels of poverty amongst the elderly in the EU. In only a year in office, the coalition has already chipped away at pensions once. Now they’re trying to do it again.

To prevent them being devalued by inflation, pensions increase in line with an index used to measure rising prices of the things people need to spend money on. In the ‘emergency budget’ produced in June last year, George Osborne announced that a different index would be used for benefits and tax credits as well as pensions. From April this year the Consumer Prices Index (CPI) was used rather than the Retail Price Index (RPI), something both parties in the coalition promised not to do in their election manifestos. Because the RPI takes into account the cost of things like council tax and mortgages while the CPI doesn’t this amounted to a major reduction in the value of pensions – of £83bn over the next 15 years according to the Department of Work and Pensions.

Now the government wishes to make them worse still by making workers pay more directly from their wages into their pensions, basing pensions on career averages rather than final salaries, and forcing people to retire later. According to the NUT, many teachers’ pension contributions will be rising by 50 per cent, from 6.4 to 9.8 per cent of their salary. The PCS says in some cases civil servants will be paying double or triple what they do now. All this is happening at a time when public sector workers have been given a two year pay freeze, which, with inflation running at over 4 per cent, amounts to a substantial pay cut.

This is justified by the claim that public sector pensions are over-generous already, or ‘gold-plated’ as Nick Clegg calls them. It’s a myth. Leaving aside the comparison with other wealthy nations in the west, the average pension paid to public sector workers in 2009/10 was only £6,500, with over half of public sector workers receiving less than £5,600 a year. Hardly ‘gold-plated’. In the civil service where people are less likely to work for their entire career, the PCS claim the average pension is only £6,000 and for lower paid staff only £4,200. New civil servants can now expect 30 per cent less from their pensions.

The only way in which public sector pensions might be considered ‘generous’ is, as will be discussed below, by the terrible standards of pensions given (or in many cases not given) to workers in the private sector.

Myth: Public sector pensions are a burden that needs to be sorted out before it becomes unmanageable
Fact: The cost of public sector pensions is expected to peak in 2011 and fall thereafter

Far from being a throw back from a bygone era, public sector pensions have been substantially re-negotiated in the very recent past. In 2006 the Labour government saw through substantial reform. Most unions raised the retirement age, and employee contributions to pensions went up, with a commitment to further rises at evaluations every four years. Under the agreements, public sector workers are already committed to increasing their contribution to pensions (rather than that of the taxpayer) should benefits levels or life expectancy increase faster than expected. Only the armed forces, fire service and police force have kept their retirement ages below 65.

Despite this, last June the coalition began their ‘Independent Public Service Pension Commission’ to review public service pension provision and make recommendations to the government that were “sustainable and affordable in the long term, fair to both the public service workforce and consistent with the fiscal challenges ahead, while protecting accrued rights.” The Hutton report – named after the Labour peer who produced it – was published in March this year, and forms the basis of the government’s plans to make people work longer, pay more and earn less.

As University of Manchester academics Tony Cutler and Barbara Waine have recently pointed out, the Hutton report was unable to find a definition for ‘affordable’. The reason being is that, as the Hutton report says, affordability is defined by priorities. It does however manage to come up with a definition for a ‘sustainable’ pension system: one that is “able to manage and share risks effectively, without dramatic increases in costs”. Using these terms, the current public sector pension system is affordable. The cost currently stands at around 1.9 per cent of UK GDP, and, as was confirmed in the Hutton report, this figure is predicted to fall over the coming decades to 1.4 per cent of GDP in 2060.

The House of Commons Public Accounts Committee made similar conclusions. In May it announced that the cost of public sector pensions has been falling since reforms made in 2007/08, and are likely to stabilise at 1 per cent of GDP over the next 50 years.

Considering that public sector employment accounts for around 20 per cent of the UK working population, a cost of 1 – 1.4 per cent of GDP on pensions hardly seems a mighty sum. Nonetheless, the right wing gutter-press wheel out scare stories fed to them by business lobbyists and Conservative politicians, claiming that public sector pensions will cost hundreds of billions of pounds. One popular claim is that public sector pensions will cost around 90 per cent of GDP – a figure that seems unmanageable by anybody’s account. The trick being played here is neglecting to mention that this cost is spread out over a course of about 60 years, rather than being demanded as of tomorrow, as such stories imply.

What the government really want to do, it appears, is shrink public sector pensions, not because they can’t afford to do otherwise, but because they want to make the public sector pensions look more like private sector pensions, and shrink the role of the state in the economy in general.

Myth: We’re all living longer, and this will become a problem
Fact: The rise in life expectancy is slowing, and in many poor areas is substantially lower than the national average

Another scare story whipped up around the pensions issue concerns the impact of the an ageing population; people are living so much longer, they must also work longer. However, the government’s own research also claims life expectancy will rise very slowly, by 0.4 per cent a year for men and 0.3 per cent for women. Barring any miraculous medical breakthroughs, people are not going to be living dramatically longer. As MULE pointed out last week, people in poorer areas have dramatically lower life expectancies. In Manchester, average life expectancy for men is 73.4 – over four years lower than the national average. For many then, raising the pensionable age to 68 will eliminate an enormous part of their retirement. Is this how to treat people who have given a lifetime of public service?

As Tony Cutler and Barbara Waine point out, the Hutton report does not spend any time considering the problems surrounding enforced employment for the elderly. For example, what the health implications are of working later in life, or whether the labour market will provide suitable opportunities for older workers to find employment that is sufficient to meet their needs.

Myth: Public sector pensions are in crisis
Fact: Private sector pensions are in crisis

At the bottom of the coalition’s pension reforms lies the ideological assumption that public sector pensions should be made to look more like private sector ones. In trying to make this assumption into ‘common sense’ the coalition and their media allies are attempting to turn workers in the private sector against workers in the public sector – for instance with the rhetoric of public sector pensions being unfair on “taxpayers”, despite public sector workers paying tax themselves. Workers in the private sector would be better off turning their anger and frustration towards their own conditions, using the public sector as a good example from which to fight for improved conditions for themselves.

And improved conditions are desperately needed. The inequality existing between public and private sector pensions is caused not by public sector pensions going up, but by private sector pensions going down. Part of the reason why average pensions in the private sector look so low is because a large proportion of private sector workers have no pension at all. Nearly two thirds of private sector workers have no occupational pension coverage – that is, their employer pays nothing towards their retirement. This compares to 15 per cent in the public sector. The figures get even worse for the private sector when considering those on the lowest wages. 70 per cent of public sector employees earning £100-200 per week are in an employee sponsored pension scheme, compared to only 20 per cent of private sector workers in this wage category.

Over the past 30 years, as union membership among private sector workers has declined from 44 per cent to 15 per cent, pay, benefits and working conditions in the private sector have all been progressively undermined. This is true of pensions as well: employers simply don’t want to pay them if they can avoid it, and ultimately only strong union pressure is able to force them to. This has led to an escalating poverty crisis among the elderly unable to survive on the meagre state pension of just over £100 per week. As mentioned, British pensioners are the fourth poorest in the European Union already, and the coalition will make this worse still with their reforms.

Private sector pensions are marked by extremes. While those in low earning jobs get next to nothing, those in management or executive positions get pensions so generous as to make the fattest cats of the public sector seem somewhat emaciated. Analysis carried out at the University of Manchester’s Centre for Research on Socio-Cultural Change compared the pension entitlements of Sir Gus O’Donnell – as Cabinet Secretary the UK’s highest ranking civil servant – to those of executives in FTSE 100 companies (a more than reasonable comparison in terms of levels of skill and responsibility). The researchers found that 81 per cent of FTSE directors had pensions double that of O’Donnell, while a third had entitlements worth five times as much. The Telegraph meanwhile reports that the average FTSE director retires with a £2.8 million pension pot. Unsurprisingly, this issue is left untouched both by the Hutton report, and by the government and right wing press. Just as with wages, the real division of wealth in the UK is not between public and private sector, but between the masses of low paid workers and the corporate executives whose wealth has continued to rise despite the economic slowdown. Public servants are once again being used as a distraction from out-of-control executive remuneration.

Despite claims to the contrary in the Hutton report, judged by its actions the government is committed to a ‘race to the bottom’ between the public sector and the private sector on pay and pensions. This race is bad for almost everybody, and should be resisted by everybody regardless of their employment background.

Myth: Privatisation is good for pension schemes
Fact: Private pensions allow the rich to get richer while providing a poorer service than the state

Some people will make a lot of money from the proposed reforms. The predictable consequence of the government’s proposed reforms, coming as they do when the cost of living is increasing and wages stagnating, will be many of the more hard pressed public sector workers deciding not to take out a pension scheme. Later, when necessity dictates, they will likely pay into a personal pension scheme, controlled entirely by the private sector. While such schemes will earn more for fund managers, they will pay out less to those paying into them. Alongside an increase in poverty among the elderly there will be increased opportunities for pension profiteering.

For many decades public sector pensions have served to transfer a massive amount of wealth from the public to the private sector. Public funds are given to private fund managers who put them into stock market investments to enable them to grow. The rationale is that private fund managers are best placed to manage the money and that by increasing investment pension funds could help increase the national wealth. It was a key part of the argument that what is best for finance, is best for everyone – an argument that lies in tatters after the 2008 crash.

Private fund managers have over the years shown themselves to be thoroughly incompetent, with numerous different scandals leaving in their wake ruined retirements. There is no good reason why the state cannot manage pensions, beyond the power of the financial sector and the ideological blinkers imposed. In other parts of the world the state manages all pensions: contributions are lower, payouts are higher. Nonetheless, the Hutton report takes it as a given that ‘plurality’ of pension provision – that is, greater privatisation – is in itself desirable.

Moving to a system in which the state no longer acted as a middleman for pension would allow the financial services industry to extract even more from the pensions industry. The higher the level of privatisation, the more of the contribution gets taken away as fees for the manager and as administration costs. For personal pensions, which the government intends for everyone to move to eventually, individuals lose 40 – 45 per cent of their money this way.
He who pays the piper calls the tune, and once it is taken into account that around 50 per cent of Conservative party donations coming from individuals or institutions involved in finance, the logic of the pension reforms becomes much clearer.

Myth: The pension dispute is an internal workplace dispute, and not political
Fact: The reforms are part of a decades-old political project

Conservatives have long dreamt of breaking up the big public sector unions. Not only do they provide 80 per cent of the Labour Party’s funding, they are the principle barrier to the lowering of labour conditions in the UK. A large part of the motivation for the reforms doubtless comes from the longstanding desire to eliminate the threat of a good example provided by public sector workers who have been better able to defend themselves in recent decades.

When Thatcher arrived in power in 1979, there were 13.5 million trade union members. Today there are only six million, most of them in the public sector. Part of the reason is the deliberate eradication of large scale industry and manufacturing where union membership was higher. Another is that the service sector which has replaced it is more fragmented and less amenable to union organisation. But, as Peter Lazenby spelled out in the Guardian, another very significant part of the reason is the raft of anti-union laws which were brought in by the Thatcher government and maintained by New Labour. First and foremost, employers are not legally obliged to recognise trade unions in their workplace, even if a majority of their employees are members. A range of laws were introduced to make it harder to strike: workers cannot claim back income tax for reduced earnings while on strike, and they are not entitled to any benefits while on strike.

The Labour line at the moment, articulated by Ed Balls and Ed Milliband, is that unions are falling into a trap, and rushing into the confrontation that the Tories want to use as an opportunity for a more general assault on the trade unions. It’s an argument that contains some logic, but how exactly the unions will strengthen their position by rolling over and accepting whatever unfair, worsened conditions are imposed upon their members, must be something only Balls and the Labour leadership understand.

All unions have been claiming that the government has been unwilling to negotiate with them, and had already made up its mind on the issue. This was confirmed a fortnight ago when, with talks supposed to be ongoing, the Chief Secretary to the Treasury, Danny Alexander, in effect announced that government would ultimately be pushing ahead with its plans regardless. Public sector workers have already given a lot of ground when it comes to their pensions, through the last set of reforms a few years ago and then through the switch to the CPI measure. With government having already unilaterally imposed worsened pension conditions in the budget of last June, and now showing an unwillingness to participate in meaningful negotiations, what option is there?

Ed Milliband claimed the unions had failed to convince the public of their cause. However, polls carried out over the last few months suggest this is not necessarily the case. A YouGov survey carried out in March found that half of those questioned believed public sector pensions to average £10,000 per year – as mentioned, the actual figure is £6,500. However, far from the respondents wishing lower pension on public sector workers, the average respondent said that £17,000 was the suitable figure. Only 11 per cent thought it proper that public sector workers receive a pension of less than £10,000. The latest polls suggest a slight majority of the public oppose the government’s assertion that public sector pensions are too generous, against 38 per cent who agree. 43 per cent of those polled oppose the Hutton report plans for people to retire later with less money, against 38 per cent who support it. In a Comres poll carried out for the Independent, 49 per cent of the public said that public sector workers had legitimate reasons to strike on the matter, against 35 per cent who did not. There is then, everything to fight for. The unions already have support from a significant proportion of the population, and they must take action to defend themselves.

Comments

Tim1972

12 years 9 months ago

In reply to by libcom.org

Submitted by Tim1972 on July 1, 2011

A beautiful, step-by-step dismantling of everything we have been told about state pensions. Particularly enlightening that a slight majority of the public actually think public sector workers pensions should be higher than there are at present.

The idea of us also living longer and longer is constantly trotted out to illustrate the need for pension reforms. But I'm sure everyone who looks at the life-spans of people they know can see that this has been grossly exaggerated.

It's one of those areas where many people read reports and believe them ahead of evidence based on their own personal experience and observations.

Believe half of what you read, and nothing that you hear!