Occupational pensions crisis – capitalist failure to guarantee a future for retired workers
In recent and current industrial battles the crisis in pension funds has been centre stage. Between the nine commercial semi state companies in Ireland there is a deficit in the schemes totalling €3 billion, half of which is concentrated in one company alone, the ESB.
Likewise in the private sector there are forty disputes over changes to pension schemes demanded by employers being heard in the Labour Relations Commission . Included amongst them is Marks & Spencer whose workers had to take action in December when the company announced that it would unilaterally close down the defined benefit scheme. In hundreds of other companies since the crisis began, schemes have been wound up or replaced with vastly inferior schemes for new employees where often there is no employer contribution. The Pensions Board estimates that overall a half of the 800 surviving defined benefit schemes outside of the public sector are in deficit .
The funds of privately run defined contribution schemes have also taken a massive hit. The OECD estimates that in 2008 on average the value of funds decreased by 37.5%  after which there has been a slow pick-up.
In the public service, the current government has legislated for what amounts to at least three and potentially four attacks on the pension conditions of new entrants into the civil and public service including a progressive raising of the retirement age to 68; a change from final salary to an inferior career average defined scheme and the replacement of an automatic link with public service pay rates to a delayed link with the consumer price index .
Explaining the crisis in pensions
The almost exclusive emphasis of the government, employers and the pensions industry for the crisis is demographic changes, specifically that we are living longer beyond retirement age (on average 15 years) and collectively as a population we are getting older meaning that a higher proportion of people are economically inactive relative to the active working population. These changes in the population are a reality but are far from a full explanation of the crisis.
The focus on demographics is convenient for the establishment as it serves to put the blame on retired people themselves for having the temerity to live longer when 100 years ago when the state pension was first introduced in Britain and Ireland for over 70s, the average life expectancy for a man was 50!
However, a range of other factors they would rather ignore have together created a situation where all occupational pension schemes in the private and semi state sector in particular are doomed under the present system.
Firstly there is the problem of demographic changes within companies which are not purely the product of natural aging. Take the ESB as a good example. At its height, it employed 15,000 workers all of whom would have paid into a fund that would have, for the first four decades of the company’s existence, paid out to relatively few retirees. A spike of retirement began in the 1980s and has been sustained since with no corresponding recruitment to maintain funding.
Today, the company has less than 4,000 workers and in the future is projected to have some 2,000. This decline is to a large degree attributable to the increased use of external contractors to perform work who naturally do not contribute to the pension scheme . Instead the pension fund is maintained principally by salary deductions from existing employees and corresponding employer contributions while more retirees (and their surviving dependents) than there are current employees draw from the scheme .
Secondly, the quality and stability of private sector employment has progressively declined since the immediate post war period when defined benefit schemes in the unionised private sector were the norm. Linked to this, the expectations that existed about the return of investment on funds back then were based on higher rates of economic growth based on productive investment but also higher interest rates , neither of which factor have been sustained during the successive crises and booms since the mid-1970s.
The closure of companies like Waterford Glass shows how in the private sector where both the company and the pension fund are insolvent, workers are faced with extreme difficulty in having their rights vindicated. There, the workers were forced to go to the European Court of Justice to obtain a finding that places an obligation on the government to guarantee a minimum proportion of what the workers were entitled to  .
Thirdly, the progressive replacement of defined benefit schemes with often optional defined contribution schemes has been accompanied by a shift of responsibility to the employee to maintain contributions where they have more competing claims on their income (mortgages, student loans etc) than was the case for previous generations. The minimal obligation on employers is to facilitate through salary deductions the payment by the worker into a pension scheme if he/she wishes with no obligation on the employer to contribute themselves.
Government support for private pensions industry a massive tax break for the better off
In its 2010 policy document entitled ‘Making Pensions work for People’  the progressive think tank TASC brought together figures which demonstrate the extent of government support for the better off in society when it came to the tax breaks available when one pays into a private pension fund. Quoting the 2008 Statistical information on Social Welfare Services , the Department of Social Protection reported that tax reliefs on pension schemes amounted to €3bn (compared to €4.3bn spent then on the state pension at that stage) and the Revenue Commissioners estimated that 80% of that €3bn tax break was enjoyed by the top 20% of earners . Subsequent reductions by the current government in the scale of the tax breaks enjoyed by the rich and very high earners has not fundamentally altered the fact that this regime represents a transfer of wealth to the better off.
The private pensions industry themselves take their cut. In a report by the Department of Social Protection conducted in 2012 it was estimated that up to a third of privately managed funds could be depleted by administration costs . This and the waste of multiple firms and brokers advertise to compete for pension contributions which are then invested on the global markets in the hope of some return is a joke of a system.
Feeble responses from the government
The policy of Fine Gael and Labour and the preceding government is essentially to redistribute the cost of the crisis among different sections and generations of workers. The most recent proposedlegislative changes in the Pensions (Amendment) Bill 2013 now mean that in a crisis situation those currently retired and drawing from a fund are no longer guaranteed their entire pension income but, instead could typically expect up to a 10% cut if their retirement income is between €12,000 and €60,000. That 10% cut would then be used as crumbs towards the deficit for those paying into the same scheme but yet to retire.
Likewise, the government and employers in all sectors where they can get away with it have tried to divide and rule by drawing a line under existing defined benefit schemes, saying to the existing work force that their situation is secure and instituting an inferior scheme for new entrants.
Disgracefully, these outcomes have been typically stood over by the trade union leadership who cynically calculate on winning agreement on these attacks among the existing workforce on the basis that it does not affect them. Both segments of the workforce are being cheated by this so called solution. In the ESB in 2010, despite opposition from the Socialist Party and its supporters in the company  , a number of attacks to the pension scheme were voted through on the recommendation of the leadership of the group of unions which resulted in the closure of the defined benefit scheme to new entrants, which the existing workforce were told would help guarantee their pension fund.
Yet within three years a deficit of €1.7 billion in the defined benefit pension scheme emerged which the company through an accountancy sleight of hand tried to shirk responsibility for culminating in the ballot for industrial action late last year. The militant response from the workforce has forced a retreat for now but if industrial action in this instance or other similar situations in other companies is required, they are depending on the support of younger colleagues who have been excluded from the very scheme that the strike action being called for is seeking to protect!
So the trade union leadership have made themselves an accessory in the government and employers’ attempts to break down intergenerational solidarity. This can only be undone by a future offensive struggle to win better pension conditions for young workers.
What do socialists demand as a response to the pension crisis?
The pension crisis can be overcome in two ways – through devastating the future pensions of workers, or through breaking with the current model of private pensions gambled on the stock exchanges. The government and the employers are striving to implement the first, socialists must argue for the second. A new model of pensions is needed, which places the rights of working people to a living pension in its centre. Some of the key aspects of this are:
For a unified publicly run occupational scheme
Occupational pension schemes operating within one company or branch of industry (as exists in the construction industry) are a certain recipe for disaster. All schemes must be merged and incorporated into a single occupational scheme into which employers must contribute and which is run on a pay as you go basis i.e. the current working generation support the retired generation.
Workers should receive at least a final half salary income linked to the salary of the job from which they have retired with an agreed mininum. The social welfare pension should be fully integrated into this, as is the case already for civil servants. The Socialist Party has called for a public sector salary cap of €100,000 which would mean a pensions cap of €50,000 per annum. The transition to such a system would allow for the elimination of the current tax relief system which overwhelmingly benefits very high earners but would be done in a manner that would not disadvantage middle income earners.
Nationalise the private pensions industry
A unified publicly run scheme necessitates the nationalisation of the pension industry and public control of all funds. Ordinary workers in the pension industry can be incorporated into the publicly run scheme but wasteful overheads that serve to enrich executives would be eliminated alongside the need for competitive advertising. Pension funds could be invested in a manner that benefits society through creating jobs and expanding the productive capacity of society and not the likes of the arms industry and other branches of the global economy which do not serve humanity.
Make care work and work in the home fully pensionable
Many, predominantly women, leave the paid workforce, sometimes twice, to take on the care of children and subsequently elderly relatives, thus under the current system disadvantaging themselves pension-wise both in terms of less pension contributions but also stunting their career progression leading to a smaller final salary. All care work should be pensionable and the contribution made in the workplace and the home be indistinguishable.
Remove from employers the right to close or alter private schemes
What gives employers the right of ownership of schemes regardless of how much or how little they contribute? Control over schemes as they exist should rest jointly with contributing workers and retirees.
Tackling the pension’s crisis is intimately connected with resisting the capitalist crisis and fighting for a socialist re-organisation of society. Together with the measures outlined above, there is a need to tackle the other dimensions of the capitalist crisis, such as unemployment and forced emigration. These result in a whole section of our potentially economically active population being prevented from making a contribution to society including supporting those in retirement.
Those who make the argument about demographic changes would like us to believe lower pension pay outs are simply inevitable. What they fail to consider is that the productive capacity of society today is incomparably higher than a hundred years ago. The potential is there, on the basis of current technology and the technical level of the working class, for a working population to support those who have made their contribution as well as support the sick, children and those in full time education. However, this potential clearly cannot be realised under capitalism which as a system proves itself with every pension fund crisis incapable of securing a decent retirement for working people.
As matters stand now workers in good health should have the right to retire at 65 or alternatively after 40 years service whichever comes sooner. In a society run for people not profit a real discussion could take place considering the options of shortening the working week for all and/or progressively lowering the retirement age in a manner that would be permitted by advances in productivity.
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3. OECD Pensions at a Glance 2009 Ireland http://www.oecd.org/ireland/43126097.pdf
4. Public Service Pensions Single Scheme overview http://per.gov.ie/single-scheme-brief-overview/
6. Big Trouble Ahead for pensions as Fundamentals of Financial Crisis Remains Unresolved http://www.indymedia.ie/article/104176?search_text=pensions
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8. Making Pensions Work for People TASC Policy Update http://issuu.com/tascpublications/docs/tasc_pension_update_220110_final
10. Making Pensions Work for People TASC Policy Update http://issuu.com/tascpublications/docs/tasc_pension_update_220110_final
11. Pension Fees can leave you shortchanged Irish Times 28th February 2013 http://www.irishtimes.com/business/pension-fees-can-leave-you-shortchanged-1.1251551