The great pensions rip off

Posted by Ralph Blake on June 24, 2011. Filed under Economy. Posted with the tags:Economy, Pensions
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Public pensions face a two pronged attack form the financial markets. The attack consists of, as Danny Alexander has so publicly said, making as pay more towards our pension, wait longer for the pension and not have it linked to our final salary but to a gamble on the financial markets. He omitted to mention that pensions in future will be linked to the consumer rather the retail price index which would be an effective 17% cut over the life of a twenty year pension.

It is essentially part of a way of turning the reckless losses incurred by the financial system – bank losses; public money supporting the embattled economy; lost tax receipts and increased welfare payments from the deepest recession since the 1930s depression – into public debt and reducing this debt by cutting services and pensions while increasing taxes.

This UK public debt has doubled mainly because of these reckless losses to over 1000 billion (one billion is 1000 million) over the last three years having taken 10 years prior to that to double. This is part of the reason for the attack on public pensions. The coalition is covering up this real reason for the cuts in public pensions by saying they are too generous and the country cannot afford them any longer. Where the reality is that they are making those in society who had no responsibility for the financial crash and the recession it caused pay for it.

The second attack from the financial market is the way that the system has attempted to fund our retirement. Our pensions are in effect deferred wages that are set aside to provide for us when we retire. Rather than set aside sufficient funds to meet our retirement needs successive governments and public authorities have invested a smaller amount of money in stock and bond markets in the expectation that the money would grow to meet the funds that are required when we retire. The balance between the “sufficient funds” and “the smaller amount of money” has been given away over the last 25 years to the rich, wealthy and corporations through tax cuts.

This strategy has proved a disaster with the real value of UK stock market investments falling by over 40% in real terms between 1999 and 2009. Bond valuations have fallen to as interest rates have been kept at an all-time low to deal with the dot come crash and then 2007’s credit crunch. This has meant that the gap between the value of assets held in our pension funds and the value of what the government have guaranteed to pay us is huge. Estimates range from £875 billion to £1000 billion and this deficit is adding more each year to the public debt. In other words the government and public authorities have gambled our pensions on the financial markets and lost.

Now they want us to pick up the bill!

We are right to oppose these attacks on our pensions; there is plenty of wealth in the banks, rich, wealthy and corporations to pay the bill for the crisis of their system that they have benefited from. But it also gives an opportunity to look at a different way of providing for our retirement that does not depend on a gamble on the financial markets. One where society as a whole takes a collective responsibility for ensuring that we all enjoy a retirement free of financial worry where all our basic needs are met free of charge.
The views expressed as solely the author’s.