PENSION CRISIS: A POLITICAL FAILURE
The impending pension
crisis has been portrayed as an economic crisis rather than a failure
of political policies. It should be a matter of national shame that a rich country
like Britain, world's fourth biggest economy, boasting record corporate
profits, is unable to provide a decent pension. It is even worse the
well-off, company executives, employer represnetatives and others are
advocating policies which seek to erode people's hard won rights to a
decent pension. It should be noted there is no pensions crisis for many
company executives and a rich elite who, regardless of their
performance, continue to receive generous pensions.
It is only when ordinary people ask for a decent pension that the
notion of a 'crisis' is raised.
1. Ordinary people would love to save for old-age but most barely earn enough to afford a house, high transport and energy costs or educate their children. This hardly leaves enough to save for a pension. The average annual wage of £25,000 is distorted by unrestrained fat-cattery at the top. Nearly 60% of British workers earn less than the average wage and cannot afford to enter the housing market. Where people can afford to buy a house, 20% - 40% of their income is taken up by mortgage repayments, leaving precious little to put away for pensions. Young workers, those on the minimum wage and in the retail and hospitality industries can only dream of building a pension pot. Without a decent disposable income people cannot save for pensions. In recent years, British economy has been sustained by high personal spending. If poorly paid citizens were forced to to save even more, it would lead to a spending crisis and Britain would be pluged into a full recession
2. The
proportion of people with low incomes has remained roughly constant
since 1979, despite an average income growth of over 40 per cent. The
wealthiest 20% of the population earns 17 times as much as the poorest
20%. The national share of the wealth of the poorest 50% of the
population has shrunk from 10% in 1986 to 5% in 2002. A large section
of the population simply does not have the means to save enough for a
pension. Successive governments have done little to reverse income
inequalities and create a climate for ordinary people to save for
pensions.
3. The
regressive taxation policies of successive governments have further
eroded the ability of people to save for pensions. Around £100
billion of taxes that could provide generous pensions for all are
evaded or avoided by multinational corporations and rich individuals.
Rather than tackling the abuses, governments have shifted taxes on to
labour, small and less mobile businesses. Despite record economic
growth and increase in corporate profits, the 1990-91 corporate tax
take of £21.5 billion increased to £33.5 billion in
2004-05. For the same period, the income tax take increased from
£48.8 billion to £122.8 billion. Individuals on the minimum
wage end up paying 10% of their income in tax and national insurance
contributions, whilst 65,000 wealthy elites living in Britain but
pretending to be domiciled elsewhere pay little or no income tax. After taking account of indirect taxes (e.g.
VAT) the top fifth of earners pay a smaller proportion of their income
in tax than the bottom fifth. Yet the government makes no connection
between its tax policies and the pensions issues.
4. Pension contributions by employers are part of a legal and moral contract, but successive governments have enabled companies to transfer huge amounts of wealth from employee pension schemes to shareholders. In the 1980s and 1990s, many companies took pension holidays i.e. they did not pay the agreed amounts into the pension schemes. At the height of the stock market booms, many also expropriated pension scheme surpluses to enable them to boost profits, dividends, executive salaries and bonuses. Employees have been left with inadequate pensions. Companies should be asked to make good the expropriations. Directors of the companies refusing to do so should be prosecuted. All employers should be required to contribute to a pension scheme run for the benefit of employees.
5. To build a nest-egg for their old age, many people put their savings in commercially marketed pension schemes, endowment mortgages, insurance policies or specialist bonds. But such savings are not safe and do not guarantee an adequate pension or a decent return. The Maxwell type of scandal is still possible. Nearly five million people have lost some £13 billion in the pensions mis-selling scandal. Over six million people have been short changed to the tune of £50 billion in the endowment mortgage scandal. The precipice bonds, split-capital investments, Equitable Life and other episodes further show the failures of the ‘light touch’ regulation and governments to safeguard people’s savings. Company executives devising and marketing the scams made millions in salaries, bonuses, perks and profits. None have been prosecuted. None of the offending companies have been wound up to compensate their victims. Without a clean-up of the financial services sector, people will have little faith that their savings or pensions are safe.
6. Instead
of real assets, people’s pension savings are invested in the biggest
casino of all times, the stock market. The value of the pension pot is
shaped by speculative frenzies and market bubbles rather than
investment in real assets. Bankers, financiers and stockbrokers always
win because they receive commission whether the securities are bought
or sold. The pension fund managers receive lucrative financial rewards
for short-term gains, but escape accountability when their gambles
don’t pay-off. There is no transparency about how the pension funds are
used. Such
a structure cannot provide a long-term stable pension policy.
7. The pension crisis is a failure of political policies pursued by successive governments. Reports written by corporate elites may advocate compulsory savings by employees to provide for pensions, but many people are simply not in a position to save. For years to come, many debt-ridden graduates will be busy repaying their loans and thinking about finding adequate housing and raising families rather than saving for their pensions. Graduates have been placed in their position by government policies. The housing bubbles are encouraged by the use of blunt fiscal policies that seem to rely mainly on interest rates to regulate the economy.
8. Any government addressing the pension crisis needs to reverse the rising income inequalities and end the organised looting of people’s savings by the finance industry. The government needs to end the regressive system of taxation that prevents people from making adequate provision for their pensions.
9. The government needs to clampdown on tax avoiders to ensure that the democratically agreed taxes are collected and redistributed. To check the stock market bubbles, the government should levy a tax on the speculative flows to fund pensions for ordinary people.
10. The government needs to have a fresh look at the financing of hospitals, schools, roads and homes. Instead of paying exorbitant sums through the expensive Public Finance Initiative (PFI) and the Public Private Partnership (PPP) initiatives, public assets should be financed directly from employee pension funds. Such a way of financing public assets, provides cheaper money and also increases the pension resources available to employees.
26 September 2005