Thoughts on recent pension reforms.
Things have changed a lot for me this past year, for one I'm back to self-employment and freelancing, on the plus side it's refreshing not having to deal with the petty politics of private companies and their hierarchies. One of the negatives though is that I have to pay close attention to my own finances and tax contributions etc. So while going through my jumbled financial history, I looked through my workplace pensions, and the bit from the image stood out to me.
It's not a record of what's in my pension account, it's an estimate, and I suspect it's inaccurate based on what is in there, but regardless I think it's quite illustrative. This pension scheme was set up at some point in 2017 and lasted until 2021. Workplace pensions became compulsory in 2018, and at the time I remember them being controversial, but since they've been introduced I haven't seen much discussion about them.
I'm not really a fan of them, the image above is just part of the reason, I was working an average of 42 hours a week with additional shifts, and when I first started with that company I was working an average of 60 hours but with additional shifts that sometimes meant 72 or even more before a break. On national minimum wage, this would mean had I worked with this company until 2058 on this basis my pension would be £42 a year. Now, I have reason to believe that isn't accurate, but my own calculations don't conjure a treasure chest out of a purse either1 . This scheme did allow you to up your contribution percentage, but my take home pay was around £300 per week once deductions for national insurance other tax and the workplace pension at the legal minimum rate. That pay just about covered my living expenses, rent, bills, food clothing etc, with a small amount left over, so even the next level of contribution would've eaten into that to a worrying degree. For low incomes, this pension scheme is just another financial burden per month in exchange for the promise of potential money down the line.
But one of the key features of capitalist economics is that the less you have, the more you need to spend, while the more you have, the less you need to spend in order to survive. If I were given the choice of £42 in the possibly 2050s or now, I would choose now, it would not be life changing, but it would be useful now, but in the future? Especially this future? Inflation, climate crisis, escalating political instability, will there even be a pound or a UK or me around to enjoy these limited benefits?
But even if everything was fan and dandy, this is a rotten system. It does however have its winners, I looked up the official workplace pension guidelines just to double-check what the legal minimum was now the systems been running for a few years. Here's what it says
Workplace pension contributions
The minimum your employer pays You pay Total minimum contribution
From April 2019 3% 5% 8%
You’re in a defined contribution pension scheme. Each payday:
you put in £40
your employer puts in £30
you get £10 tax relief
A total of £80 goes into your pension.
This is just the legal minimum structure, so long as the minimum is met the actual schemes can vary quite a bit. But since it's based on percentages of income, it has the effect of giving out more to those on higher pay, 5% of £300 is £15, but on £3000 it's £150. I shared this image and some information about these schemes elsewhere and received outpourings of sympathy and sarcastic jabs at the scheme, but I also got some strange defensive responses from people who couldn't wait to tell me how much money their pension schemes were paying out. At first, I thought they were just confused, several of were American and kept talking about 401ks, but as the conversation progressed it soon became clear that wasn't the main problem. Some responses were condescending and assigned blame to me, "you must not have paid much in" as if they knew the details of my life, or they had mistaken me talking about this as a request for financial advice.
Many of them quickly lost interested in me and started talking amongst themselves comparing their pension pots, how much they pay how much they'll get, how long etc. So while I didn't appreciate strangers bragging to me about how much they love their companies, hell I found it quite nauseating, I do think it that attitude illustrates why this reform was introduced. Private pensions with contributions by employers or involvement by a company already existed in the UK, what this did was make it compulsory for salaried employees and set up a minimum framework. I believe the desired effect of this was to encourage employees to view their employers as more than just a means to live, in 2017-18 there was a massive advertising push over them trying to drive up interest and a sense of urgency, it encouraged workers to talk about and pressure their employers about enrolment in a pension scheme, and I remember "We're all in" was the main slogan of the campaign. It's clearly worked on some people, I've also seen workplace pensions that go beyond the minimum offered as a perk for certain specialized workers and management positions. I now think the hostility was from that sense of unease most of us get when someone criticizes something that has benefitted us, by reframing it as a personal failing it let them acknowledge some failings but in a way that didn't reflect on them. Or, maybe they were just being jerks, it is the internet, after all.
One other thing that stuck with me, the reform was justified on a sense of equal relations between employee and employer "when I pay in, my boss pays in too" was a bit from one of the more omnipresent adverts. But that clearly isn't true, leaving aside that the companies wealth and assets comes from the activity of its workforce, even the government guidelines show this isn't true, 5% from employee, 3% from employer and the government will chip in a bit by writing off a small amount of tax. So, already the "we're all in" principle has been thrown in the bin2 , and the precedent that an employee is expected to contribute out of wages the majority of their pension has already been established. I'm not a mind reader, but I can see which direction this will go if things keep trending the way they have been for the past 30 years.
Several Americans kept talking about 401ks and if this was the same or similar, I'm not an expert on financial products, but I do believe they've had those for a while now, and while the American labour force is well known for many things, its high standards of financial security of its employees and generous pensions isn't one of them. So, if they are similar or the same, that's worrying. I don't think the implementation of this reform will go down in history as a win for the working class of the British Isles.
- 1 Finances aren't my strong suit, so I could be missing some other detail, and of course these calculations are based on investments, which can pay off much more than expected, underperform or collapse entirely. This was the second pension provider this company went with, as the first one collapsed within the first months
- 2 While I didn't pay close attention to the `rate my investment portfolio competition`, one thing that did stick out to me was that not one of the proponents of the system had a pension plan that the employer matched equally