France is apparently following the example of Ireland and Hungary and seizing pension funds.According to eFinancialNews, the French parliament passed a law last week allowing 36 billion Euros to be seized from the French reserve pension fund to be used…
Posts Tagged ‘Pensions’
France, Ireland and Hungary Seize Pensions As Part of Move By Governments to Use Long-Term Assets to Fill “Short-Term Deficits”
November 29th, 2010 |
No Comments
Deputy PM: Pensions permanently higher
November 28th, 2010 |
No Comments
Deputy PM Jovan Krkobabić has repeated that pensions will be higher next year and that the raise would be permanent.
He pointed out that pensions would be increased despite all difficulties.
France set to grind to halt over pensions strike
September 7th, 2010 |
No Comments
More two million people are expected to take to the streets across France today in protest over the government’s pension reform plans.
“Pensions key to changesâ€
February 8th, 2010 |
No Comments
Economic expert Jurij Bajec said that the key topic in the IMF talks will be pensions. He said that there must be discussion of a solution that will enable in the long-term, a smaller amount of assets to be set aside from the budget for filling the pension fund.
Dinkić: Higher wages and pensions in 2010
February 1st, 2010 |
No Comments
Economy Minister MlaÄ‘an Dinkić told B92 TV on Sunday that wages and pensions in Serbia “must be unfrozen from Septemberâ€. “We will speak about that with the International Monetary Fund, he added.
Pensions to remain frozen in 2010?
November 2nd, 2009 |
No Comments
The pension system, accused of “wasting from the state budget the most”, will be the first to undergo cuts that should save money, a Belgrade daily claims.
One of the proposals to this end is the freezing of pensions in 2010, that should, “according to utterly rough estimates, save about RSD 15bn by the end of next year”, VeÄernje Novosti writes.
“Agreement with IMF depends on pensions”
October 30th, 2009 |
No Comments
The final agreement between the Serbian government and the IMF will depend on Serbia’s readiness to reform the pension system, B92 has learned. Our government source said on Friday evening in Belgrade that the only point that has been resolved thus far concerning the pension system is that the retirement age for women will not change.
Krkobabić to fight for pensions “at all costs”
July 24th, 2009 |
No Comments
Deputy PM and Associated Pensioners’ Party of Serbia (PUPS) leader Jovan Krkobabić says he will not agree to a reduction of pensions at any cost. “The government now believes that a pension reduction and VAT increase are not an option. In any case, I will not step back from this policy at any cost,†he said in an interview with daily Novosti.
Over-65s to outnumber under-fives worldwide
July 21st, 2009 |
No Comments
US census bureau report highlights shift in global population that may bring social and economic changes worldwide
The world is about to cross a demographic landmark of huge social and economic importance, with the proportion of the global population 65 and over set to outnumber children under five for the first time.
A new report by the US census bureau highlights a huge shift towards not just an ageing but an old population, with formidable consequences for rich and poor nations alike. The transformation carries with it challenges for families and policymakers, ranging from how to care for older people living alone to how to pay for unprecedented numbers of pensioners – more than 1 billion of them by 2040.
The report, An Ageing World: 2008, shows that within 10 years older people will outnumber children for the first time. It forecasts that over the next 30 years the number of over-65s is expected to almost double, from 506 million in 2008 to 1.3 billion – a leap from 7% of the world’s population to 14%. Already, the number of people in the world 65 and over is increasing at an average of 870,000 each month.
The rate of growth will shoot up in the next couple of years, with both overall numbers and proportions of older people rising rapidly.
The shift is due to a combination of the time-delayed impact of high fertility levels after the second world war and more recent improvements in health that are bringing down death rates at older ages. Separate UN forecasts predict that the global population will top 9 billion by 2050.
The US census bureau has led the way in sounding the alarm over the changes. This is its ninth report drawing together data from around the globe since it first focused on the trend in 1987.
Its latest projections warn governments and international bodies the tipping point will present widespread challenges at every level of human organisation, starting with the structure of the family, which will be transformed as people live longer.
That will in turn bring new burdens on carers and social services providers, while patterns of work and retirement will similarly have huge implications for health services and pensions systems.
“People are living longer, and in some parts of the world, healthier lives,” the authors conclude. “This represents one of the crowning achievements of the last century but also a significant challenge as proportions of older people increase in most countries.”
Europe is the greyest continent, with 23 of the world’s 25 oldest countries. Such dominance of the regional league table will continue. By 2040, more than one in four Europeans are expected to be at least 65, and one in seven at least 75.
The UK comes in at number 19 in the list of the world’s oldest countries. Top of the pile is Japan, which recently supplanted Italy as the world’s oldest big country. Its life expectancy at birth – 82 years – is matched only by Singapore, though in western Europe, France, Sweden and Italy all have life expectancies of more than 80 years (in the UK it is 78.8).
The contrast in life expectancy between rich and poor nations remains glaring. The report shows that a person born in a developed country can expect to outlive his or her counterpart in the developing world by 14 years. Zimbabwe holds the unfortunate record for the lowest life expectancy, which has been cut to 40 through a combination of Aids, famine and dictatorship.
But an important finding of the report is that the wave of ageing that has until recently been considered a phenomenon of the developed world is fast encroaching on poorer countries too. More than 80% of the increase in older people in the year up to July 2008 was seen in developing countries.
By 2040, the poor world is projected to be home to more than 1 billion people aged 65 and over – fully 76% of the world total.
Ageing will put pressure on societies at all levels. One way of measuring that is to look at the older dependency ratio, or ODR, which acts as an indicator of the balance between working-age people and the older population that must be supported by them.
The ODR is the number of people aged 65 and over for every 100 people aged 20 to 64. It varies widely, from just six in Kenya and seven in Bangladesh, to 33 in Italy and also Japan. The UK has an ODR of 26, and the US has 21.
From that ratio, a number of profound challenges flow. Countries with a high ODR are already creaking under the burden of funding prolonged retirement for their older population. Life expectancy after retirement has already reached 21 years for French men and 26 years for French women.
Though retirement ages have begun to rise in developed countries, partly through inducements from governments to continue working, this still puts an extreme burden on public pensions funds.
Socially, too, there are intense pressures on individuals and families.
With women living on average seven years longer than men, more older women are living alone. Around half of all women 65 and over in Germany, Denmark and Slovakia are on their own, with all the consequent issues of loneliness and access to care that ensue.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Amex halts pension payments for UK
July 15th, 2009 |
No Comments
US-owned firm blames downturn as it suspends contributions to employees’ stakeholder scheme for 18 months
More than 6,000 UK staff at American Express were today contemplating a meagre retirement income after their US-owned employer told them it was suspending pension contributions for the next 18 months.
The company said payments to its occupational retirement scheme were unaffordable in the current economic downturn, though the situation would be kept under review.
Until this month American Express paid a core contribution of 3% of salary into the stakeholder scheme, with a pledge to match contributions of up to 6%.
The largely non-unionised workforce has accepted the deal, which applies to July salary payments.
Stakeholder pensions are personal retirement plans created by the government as a cheap alternative to trustee-based schemes.
Employers are under no obligation to make a contribution and have no responsibility for the success of the stockmarket-invested plans. Most have gone down in value by more than 30% over the last year, following a sharp decline in share values.
The company’s staff are based mainly in Sussex at centres in Brighton and Burgess Hill, with a headquarters in London’s Belgravia.
Much of the recent debate on pensions has focused on the affordability of guaranteed schemes, enjoyed mainly by public sector workers and older workers in the private sector. In these employers typically pay contributions worth more than 20% of salary.
Steve Webb, the Liberal Democrats’ pensions spokesman, said the company was undermining an already inadequate pension plan. “The danger is that employers are in a race to the bottom and are taking advantage of a situation that offers staff no protection.
Independent pensions consultant Ros Altmann said the choice commonly put before many employees was between cuts in pay, hours or pensions. “It is obvious that most workers, and especially younger workers, will opt to preserve their incomes,” she said.
“It’s part of a wider picture where employers have less and less involvement in pensions and individuals are left to look after their own retirement. The American Express scheme is already poorly funded and will have seen its value fall like other stockmarket-based schemes.
“It all makes for a pretty grim picture with confidence in pensions crumbling by the day,” she said.
Like other major US finance companies American Express has benefited from the taxpayer bailout to protect it from collapse. In the last quarter of 2008 its profits collapsed 79% on the same period a year before to $172m (£105m), but recovered in the first three months of 2009 to $443m.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Amex halts pension payments for UK
July 15th, 2009 |
No Comments
US-owned firm blames downturn as it suspends contributions to employees’ stakeholder scheme for 18 months
More than 6,000 UK staff at American Express were today contemplating a meagre retirement income after their US-owned employer told them it was suspending pension contributions for the next 18 months.
The company said payments to its occupational retirement scheme were unaffordable in the current economic downturn, though the situation would be kept under review.
Until this month American Express paid a core contribution of 3% of salary into the stakeholder scheme, with a pledge to match contributions of up to 6%.
The largely non-unionised workforce has accepted the deal, which applies to July salary payments.
Stakeholder pensions are personal retirement plans created by the government as a cheap alternative to trustee-based schemes.
Employers are under no obligation to make a contribution and have no responsibility for the success of the stockmarket-invested plans. Most have gone down in value by more than 30% over the last year, following a sharp decline in share values.
The company’s staff are based mainly in Sussex at centres in Brighton and Burgess Hill, with a headquarters in London’s Belgravia.
Much of the recent debate on pensions has focused on the affordability of guaranteed schemes, enjoyed mainly by public sector workers and older workers in the private sector. In these employers typically pay contributions worth more than 20% of salary.
Steve Webb, the Liberal Democrats’ pensions spokesman, said the company was undermining an already inadequate pension plan. “The danger is that employers are in a race to the bottom and are taking advantage of a situation that offers staff no protection.
Independent pensions consultant Ros Altmann said the choice commonly put before many employees was between cuts in pay, hours or pensions. “It is obvious that most workers, and especially younger workers, will opt to preserve their incomes,” she said.
“It’s part of a wider picture where employers have less and less involvement in pensions and individuals are left to look after their own retirement. The American Express scheme is already poorly funded and will have seen its value fall like other stockmarket-based schemes.
“It all makes for a pretty grim picture with confidence in pensions crumbling by the day,” she said.
Like other major US finance companies American Express has benefited from the taxpayer bailout to protect it from collapse. In the last quarter of 2008 its profits collapsed 79% on the same period a year before to $172m (£105m), but recovered in the first three months of 2009 to $443m.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Amex halts pension payments for UK
July 15th, 2009 |
No Comments
US-owned firm blames downturn as it suspends contributions to employees’ stakeholder scheme for 18 months
More than 6,000 UK staff at American Express were today contemplating a meagre retirement income after their US-owned employer told them it was suspending pension contributions for the next 18 months.
The company said payments to its occupational retirement scheme were unaffordable in the current economic downturn, though the situation would be kept under review.
Until this month American Express paid a core contribution of 3% of salary into the stakeholder scheme, with a pledge to match contributions of up to 6%.
The largely non-unionised workforce has accepted the deal, which applies to July salary payments.
Stakeholder pensions are personal retirement plans created by the government as a cheap alternative to trustee-based schemes.
Employers are under no obligation to make a contribution and have no responsibility for the success of the stockmarket-invested plans. Most have gone down in value by more than 30% over the last year, following a sharp decline in share values.
The company’s staff are based mainly in Sussex at centres in Brighton and Burgess Hill, with a headquarters in London’s Belgravia.
Much of the recent debate on pensions has focused on the affordability of guaranteed schemes, enjoyed mainly by public sector workers and older workers in the private sector. In these employers typically pay contributions worth more than 20% of salary.
Steve Webb, the Liberal Democrats’ pensions spokesman, said the company was undermining an already inadequate pension plan. “The danger is that employers are in a race to the bottom and are taking advantage of a situation that offers staff no protection.
Independent pensions consultant Ros Altmann said the choice commonly put before many employees was between cuts in pay, hours or pensions. “It is obvious that most workers, and especially younger workers, will opt to preserve their incomes,” she said.
“It’s part of a wider picture where employers have less and less involvement in pensions and individuals are left to look after their own retirement. The American Express scheme is already poorly funded and will have seen its value fall like other stockmarket-based schemes.
“It all makes for a pretty grim picture with confidence in pensions crumbling by the day,” she said.
Like other major US finance companies American Express has benefited from the taxpayer bailout to protect it from collapse. In the last quarter of 2008 its profits collapsed 79% on the same period a year before to $172m (£105m), but recovered in the first three months of 2009 to $443m.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
IBM to shut final salary pension plan
July 8th, 2009 |
No Comments
• Move affects 5,000 IBM staff still on defined benefit scheme
• It has totally thrown our futures into doubt, says one employee
Thousands of IBM workers in the UK face the closure of their final-salary pension scheme as the technology company becomes the latest to cut pension benefits.
UK staff were told last night that IBM planned to shut the defined benefit scheme to existing members, as it was no longer prepared to shoulder the financial burden. The scheme was closed to new members several years ago.
An IBM spokesman said the move would “maintain competitiveness in the marketplace and introduce greater predictability to long-term pension provision costs”. It has now started a consultation process.
IBM employs about 20,000 people in the UK, and 5,000 are still on the final-salary scheme. Under the proposals, this scheme will close in April 2010 and members will then have the option of joining IBM’s defined contribution scheme, under which they and the company would both pay a percentage of their salary into a fund whose final payout is uncertain.
The company, which posted better-than-expected profits in June, said it intended to enhance this defined contribution plan.
Staff learned of the plans in an email sent by IBM’s UK and Ireland general manager Brendon Riley yesterday afternoon.
According to technology news site The Register, the move has angered staff. “I’m fuming,” said one IBM employee. “It has totally thrown our futures into doubt.”
The consultation process will start on 5 August and run for 60 days. IBM is setting up a new body to allow workers to communicate their views to management, who say they will consider feedback before taking a final decision.
Theresa May, shadow work and pensions secretary, called the move another blow to pension provision in the UK.
“The reality is that this Labour government has repeatedly undermined pensions with tax raids and ever more red tape, leaving many companies feeling like they have little option but to shut down their final-salary schemes,” she said.
“Gordon Brown needs to face up to the damage he has done to pensions in the last 12 years and look at what he can do to stop the slow death of company pensions in the UK.”
Pensions experts have been warning for some time that final-salary schemes are becoming increasingly unsustainable, especially in the light of falling stockmarkets last year. Aon Consulting calculated last week that the top 200 defined benefit schemes were now £73bn in the red.
Last month, Barclays shut its final-salary scheme to existing members, while BP closed its scheme to new entrants. Surveys have shown that many other FTSE 100 companies expect to close their schemes in the next few years.
There are also fears that the BBC is facing a growing pensions deficit.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Treasury to unveil financial reforms
July 8th, 2009 |
No Comments
In a response to the financial crisis the chancellor will extend the highly visible risk alerts for tobacco and fatty foods to include mortgage and pension products
Alistair Darling will sketch out plans today for a health warning system for financial products as the government seeks to show that consumers will benefit from the Treasury’s wide-ranging revamp of the banking industry.
In a much-anticipated response to the financial crisis of the past two years, the chancellor will look at ways of extending the highly visible risk alerts for tobacco and fatty foods to include mortgage and pension products.
The Treasury, braced for criticism that its lengthy document ducks some of the key reforms to prevent another systemic breakdown of the financial sector, will announce a three-pronged strategy. Darling wants improved regulation of the financial system, better management of banks and a better deal for consumers.
Darling has made it clear that he intends to implement all 27 recommendations made by Lord Turner, the chairman of the Financial Services Authority, in his April review of what went wrong in the City.
But the chancellor is likely to concede that it is impossible to implement all the changes at once, with some reforms pushed through immediately and others put off until the next parliament. Among the immediate changes are the requirements for banks to set aside more capital if they provide incentives for traders to take big risks, and for credit default swaps to be pushed through a central clearing system rather than traded in private.
The combined white and green paper will reflect Treasury opposition to a separation of high-street banks and investment banks, but will support the call from Mervyn King, governor of the Bank of England, that commercial banks have a “last will and testament” to make it easier to break them up in the event of collapse.
Consumer groups have been pressing hard for changes and the chancellor is expected to stress that the rebuilding trust in banks is a vital part of any reform package. Darling is concerned that the consolidation of the banking industry since 2007 has reduced the appetite for competition among the major players .
Mick McAteer, director of the Financial Inclusion Centre, said: “Competition in the UK banking sector has been weak due to the stranglehold the big players have on the high street. As a result of the financial crisis, there is a risk that they will consolidate this stranglehold and that competition will be further undermined.”
McAteer also called for bank boards to exert stronger controls on powerful chief executives, a subject that will form a central plank of the review by City grandee Sir David Walker, due next week. Darling is likely to say that the FSA already has considerable powers to influence the make-up and performance of bank boards but that a new code of practice will be crucial to prevent the excesses of the past.
The Treasury plans to expand a pilot scheme in the north-east and north-west, which has been helping bank customers get financial advice. Darling is also keen to build on recommendations from Lord Mandelson for tougher controls on overdraft charges levied on small businesses.
The chancellor will outline his plans at lunchtime while his City minister, Lord Myners, will field questions from the Commons Treasury select committee shortly afterwards.
Myners hit out at plans from Brussels for a crackdown on hedge funds, many of which are based in London.
Myners expressed concern at the “protectionist impact” of the plan, which he said would be costly for pension and investment funds. The City minister also said the hedge fund managers threatening to quit the UK would “make my job harder” in the negotiations with Europe.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Pension warnings go unheeded
June 30th, 2009 |
No Comments
• Women fall further behind in providing for the future
• A quarter of Britons have no private pension plan
Worries about the recession are causing people to ignore warnings about the pensions gap, with the number of people saving enough for an adequate income in retirement remaining static in the past year, according to a pension report published on Tuesday.
While the percentage of those saving adequate amounts has increased in the past year from 51% to 54%, the Scottish Widows UK Pensions report found the gender gap has increased, with only 47% of women saving enough compared with 59% of men. Women over the age of 50 have been hit hardest, with 5% fewer likely to have an adequate pension.
Ian Naismith, head of pensions market development for Scottish Widows, attributed the decline in women’s savings to the effect of the recession on household incomes: he believes they may be using money that could otherwise be saved to ensure their children are not adversely affected by spending cuts.
“Retirement is way down in most women’s priorities compared to providing for their families,” he said.
The survey, conducted by YouGov for Scottish Widows, questioned 5,000 people in the UK over the age of 30 and earning £10,000 a year or more.
Despite the level of pension savings increasing steadily year on year, one quarter of Britons do not expect to receive any income from a private pension, rising to 31% among those in households with earnings between £10,000 and £30,000. Among the self-employed, the figure was even higher, at 35%.
Even among those entitled to join a defined contribution company pension – where payouts are based on stockmarket performance – one in five have failed to take advantage of the fact their employer is likely to cover the running costs and make contributions on their behalf.
These findings are backed by a similar survey from the employee benefits company Foster Denovo, which found that more than a third of adults in Britain who are not already retired have not joined a personal or company pension scheme.
More than a quarter of people aged between 25 and 44 did not have any provisions – such as property, inheritance or savings – in place for retirement, while 11% of this age group said that they had not yet considered how they would cope financially at the end of their working life.
The survey also found that more than two-thirds (68%) of non-retired men in Britain have a pension, compared with 60% of women. Ian Bird, senior partner at Foster Denovo, said: “This figure is likely to be representative of women’s childcare commitments, but it is clearly an issue that the pensions industry must address. It needs to look at what support it can provide to reverse this trend.”
The government aims to increase the number of people saving for their retirement with the introduction of the personal account, a simple self-enrolment pension scheme run by employers, in 2012. But critics say that those on low incomes will struggle to escape the effects of the pension credit, a means-tested benefit designed to top up pensioners’ incomes, to £130 a week in the current tax year. The benefit is reduced by a taper for those with private pension savings.
Their claims are supported by the Scottish Widows’ report, which found that 32% of those aged 65 to 69 had been personally affected by means tests in retirement.
Even those who are managing to save sufficient amounts now are likely to fall back in the future as companies cut back on or close final-salary schemes. Ian Naismith said: “Of the 54% who are saving adequate amounts, two-thirds are in final-salary pension schemes, so their future prospects might not be so good.”
Last week 96% of companies (out of a sample of 156 questioned by the accountancy PricewaterhouseCoopers) said they thought tax changes had made final-salary schemes unsustainable in the future.
Despite the low interest rates of the last nine months, most people questioned by Scottish Widows thought cash ISAs were the safest form of investment, with 72% saying they were very or quite safe.
The survey found that people below the age of 30 now see cash savings, including ISAs, as the main way to ensure a reasonable standard of living in retirement.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Lift jobs axe for over-65s, demand MPs
June 28th, 2009 |
No Comments
All-party committee says employers should no longer be able to sack older workers who want to stay
The legal right of companies to retire staff compulsorily on their 65th birthday must be abolished immediately to help address the deepening pensions crisis, a parliamentary investigation has concluded.
A report into pensioner poverty by an all-party group of MPs will recommend that older people should be able to continue working full or part-time into their 70s, 80s or 90s – with full holiday and other entitlements – so long as they are fit and able to do so.
The recommendations from the Commons work and pensions select committee, to be published next month, are a response to fears that many of the next generation of pensioners could end their years in poverty after being forced out of work at 65 with pension pots that have plummeted in value.
For those approaching retirement, the financial crisis and recession have left them with potential pension incomes of some 20% less than would have been the case a year ago and with no right to carry on working to make up the difference.
The committee’s conclusions will, however, be fiercely resisted by business leaders who are determined to retain the right to shed staff at 65 and replace them, where necessary, with younger, cheaper workers. Last night the committee’s chairman, Labour MP Terry Rooney, said the government had to recognise that the law not only discriminated against older workers, but also risked making the pension crisis worse.
“There are an awful lot of people now reaching pension age who are finding that their pension pots are nothing like as big as they expected them to be,” he said. “They get to a situation where the employer is able to sack them at 65 and no one else will take them on.”
The need for urgent action on pensions was highlighted last week by a series of alarming reports about the state of the industry. A survey of 1,000 blue-chip companies by PricewaterhouseCoopers found 96% believed their final salary schemes were unsustainable.
At the same time, the Organisation for Economic Co-operation and Development put Britain at the bottom of a league table of what those coming up to retirement can expect in terms of income.
The Department for Work and Pensions said last night it would not review the compulsory retirement age until 2011, a date that campaigners say will be too late for the 25,000 people forced to retire against their will each year. Already ministers have announced that the retirement age will be increased in phases to 68 by 2048.
At the moment, a British employer can dismiss a member of staff without redundancy payments on his or her 65th birthday. Employees have a right to request to work beyond 65, but employers have only to “consider” the request.
In 2006, Age Concern applied to the high court arguing that the rules were illegal. Its case was referred to the European Court of Justice, which ruled in March that compulsory retirement at 65 was not in breach of EU law so long as the UK government was able to justify it. It will be up to the high court to determine, finally, later this year whether the rules are “legitimate”.
John Cridland, the CBI deputy director-general, said there was no need for change. “Some people can continue in their existing job beyond 65, but this is not possible for all occupations.”
Independent pension expert Dr Ros Altmann said the financial crisis meant people now approaching retirement were doing so with their assets down in value, the cost of annuities rising and government policies working against them. “If you want to supplement a disappointing pension income with some part-time work, current policies penalise you from doing so, both through age discrimination legislation and the pension credit system,” she said. “Why should it be acceptable to get rid of someone at 65? It is pure discrimination.”
John Ralfe, a pensions consultant, said abolishing the compulsory retirement age was a “step in the right direction”, but warned it could create a rush of legal challenges. “It is OK being a 67-year-old pensions consultant or a 67-year journalist but in some jobs requiring physical endurance maybe it is rather different. I can see lots of disputes and legal challenges.”
Michelle Mitchell, charity director of Age Concern and Help the Aged, said about 70% of companies had compulsory retirement at 65. “The government should scrap a piece of legislation that is at odds with the needs of an ageing society and the economy,” she said.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
Is there pensions apartheid?
False Tory outrage at fat-cat pubic sector benefits is a crude sleight of hand to divert voters’ attention from the real wealth gap
Indignation at “gold-plated” public sector pensions is the latest wave in the Conservative campaign to create a groundswell of support for spending cuts and shrinking the size of the state. Rightwing thinktanks, encouraged by David Cameron and even by the sainted Vince Cable in the Mail on Sunday, have just produced a series of reports attacking public-sector pensions. It is a deft diversion from the real fat-cat pensions of Fred Goodwin (now reduced to £342,500 a year) and his ilk on to the rather more modest pensions of nurses, teachers and care workers: the average public employee pension is £7,000.
It’s a well-timed assault, as private-sector employees still lucky enough to have an occupational pension open their statements and reel at seeing how very much less than expected they will get, with anything from a third to a half knocked off by the crash. Who should they blame? The bankers who bust the economy? Boardrooms who help themselves to vast pay, bonuses and pensions while closing company schemes for everyone else? No, the Tory hue and cry is turning them against public sector workers. If ever there were a deliberate creation of the politics of envy, this is it.
Rightwing thinktank reports have produced shock-horror numbers. Best was the British-North American Committee, which hit last week’s news with this: “UK public sector pension liabilities now 85% of GDP.” Good grief! Does that leave the rest of us just 15% to live on while the fat-cat retired dinner ladies, ward clerks and binmen live the life of Riley? It is, of course, a nonsense number, a statistical prestidigitation done by adding all public sector pension liabilities for those now retired to a life-time obligation to every existing state employee. Roll up all the money and describe it as a debt owed in one year and you get silly numbers. It’s like taking all your mortgage and all the interest you will pay over its course, and comparing that total debt with one year’s income. It will look wildly unaffordable.
The true figure is quite high, but rather less alarming. Public pensions cost 1.4% of GDP; and that will rise to 2% in 2027 and fall back below 2% thereafter. There is no inexorable upward trajectory. It may need adjustment, such as raising the pension age. As Adair Turner suggested this week, this needs to be done faster for everyone: we need to work longer. But dragging down public sector pensions won’t do anything to help those who have no private pension, or a much reduced one. Cutting public sector pensions would not save the state much either: many are low earners so what they lost on pension they would claim through pension credit.
The real problem is the devastation of private pensions. Company pensions have faced rising costs as people have lived longer: each year of life costs pension funds 3% more. Share values have not risen as fast as expected, while funding requirements were tightened by the Conservatives after the Robert Maxwell scandal. In the 1960s, 8 million private employees had occupational pensions; now it’s only 2 million.
What contributed to their mass closure was a culture change in the City as companies chased share price values to the exclusion of all else. A decent scheme used to be the norm for any respectable firm: many managers had not realised they could be ditched. But after the Big Bang, to have a good pension scheme was seen by City analysts as a sign of weak management, risking predatory takeover. So it happened that a country growing 30% richer every decade suddenly decided it could not or would not afford company pensions any longer. Last week’s Telegraph leader repeated the refrain that the “primary reason” for the closure of private pensions was Gordon Brown’s “raid” on pension dividends, but compared with the above factors and the stockmarket’s collapse, that £5bn a year was a bit-player.
The Turner commission has led to a new compulsory scheme where all employers will have to contribute 3% of pay into a pension while employees pay 4%. It’s a good start, but needs ratcheting up. In remaining private schemes employers pay an average of 10%, while public sector employers contribute 20% for better pensions.
Is that 20% too much, or is the private sector paying too little? A handful of headline-grabbing fat-cat public pensions for MPs, judges and a few others could be trimmed: as Michael Martin’s £1.4m pension hit the news, MPs wisely voted to freeze their own pensions last week. But the great majority of the cost of public pensions goes to the modestly paid, more of them women, which is why the average is just £7,000 a year. Any meaningful cut would push many back into pensioner poverty. Yet a cut is what David Cameron rashly proposed last year. “We’ve got to end the apartheid in pensions,” he told businessmen. The next day Conservative headquarters panicked and backtracked, fearing for public sector votes. But public employees have been warned.
The real pensions apartheid is not between public and private, but between the wealthy and the rest. Every taxpayer contributes heftily to the pensions of the rich, and half of tax relief goes to the top 10% of earners. A quarter goes to the less than 1% who earn more than £150,000. At last, along with the 50% tax band, incomes of more than £150,000 will from next year only get tax relief at 20%, not 40%. It was greeted with vociferous rage and the usual threats to leave the country, along with protests by the the very same wealthy people at the cost of modest public sector pensions. Tax relief still needs rebalancing to make sure most state encouragement to save goes to those with least.
Labour has a goodish pensions record – though you might not know it, as yet another report this week from the OECD put the UK bottom when comparing basic state pensions. Our basic was worth 26% of average earnings in 1979, but when the Conservatives decoupled it from earnings, it fell to 16%. But that’s misleading: nearly half of pensioners are eligible for Labour’s pension credit. Add in winter fuel allowance, housing and council tax benefit and free buses, and UK pensioners shoot up the league.
The state pension is due to be relinked to earnings in 2012 – though if the Conservatives are in power, will they do it? Labour’s new compulsory pensions for all employers will be a long-lasting legacy, and not appreciated for years. The Conservatives seem to be heading in the opposite direction.