JONATHAN TIMBERS appreciates a useful contribution to the left’s developing approach to the pensions debate
Anyone who believes that we can continue to exist as we do now with our current pension system is living in a dream world. In 2002, there were 3.35 working people for every person of pensionable age. By 2050 the ratio will be 2.2 working people for every person over 65. The basic state pension is deteriorating in value, occupational schemes are closing or reducing in value, and individual private provision is hugely unreliable and inefficient.
Robin Blackburn’s useful short pamphlet, Plugging the Gap, is a ‘must read’ for everyone caught up in the pension debate, not least those involved in the recent industrial action in the public sector against pension cuts. Although it doesn’t answer every question it asks, it does show that ‘the left’ has a progressive and practical response to the gathering crisis in pension provision.
This is in contrast to Adair Turner’s Pension Commission (details on the Department of Work and Pensions website) which only refers to four options for the future, namely:
- increasing taxes
- increasing savings
- increasing the retirement age
- pensioners becoming poorer.
Blackburn’s pamphlet offers a fifth alternative, namely that employers should contribute more through a ‘tax’ on new share issues. This new share levy would be based on company profits. In essence, a company would have to issue shares in relation to its profits to a Public Pensions Reserve Fund, which would be independent of government.
This would result in a ‘dilution’ of shares but would not affect investment revenue nor, therefore, jobs. The level of ‘dilution’ would be about one per cent of all shares but the scheme would re-distribute assets from the richest five per cent of the population to everybody else. Partly by this means, it would be possible to guarantee everybody a satisfactory ‘citizen’s pension’. There would be an option of buying extra entitlements on top of that for those who could afford to do so.
However, the paper concedes that the number of people working over the age of 65 would probably still need to double between now and 2031, and that national insurance should rise by one per cent. The scheme would raise about half of the required shortfall – a significant contribution.
However, there are a number of matters that still confuse me and which the pamphlet is not very clear about.
First, having identified future pension shortfall as just under four per cent of GDP, and claiming that the scheme would be able to plug about half of the gap, the pamphlet doesn’t seem to factor in the extra cost of a decent citizen’s pension (so the shortfall might be higher). The projected growth rate of the fund is also very hypothetical. There may also be an issue as to the survival of private and occupational pension funds during the years when their payout is at its peak. All of these factors may render the projected figures unreliable.
Secondly, Blackburn suggests that the fund ‘would channel resources to all pension funds catering to the mass of employees and small savers’. This poses two problems. Wouldn’t that make the resources subject to fluctuating performances in individual company funds? And if pension entitlements are not centrally administered in all cases from the fund, how will they be monitored and how much will the monitoring cost, particularly if private schemes fail, as they will from time to time?
Thirdly, although the fund would undoubtedly be more robust than individual schemes, because of its diversity and size, it is still dependent on the performance of share prices and presumably on the profitability of national companies. These could deteriorate further and any government implementing this scheme would be driven to do whatever it could to protect share values, as a central principle of its policies, notwithstanding its other commitments.
Fourthly, might a share levy of this nature, encourage companies to transfer assets to off-shore or foreign holding companies and thereby escape the levy?
Notwithstanding these reservations, one of the most vital contributions that this pamphlet makes is its clear critique of the existing ideas for closing the shortfall in pension funding.
Forcing people to work for longer is simply not an option for some people, particularly the poor and manual workers, who either die early or develop physical impairments from work which prevent them from working. I don’t foresee employers demanding greater access to a pool of unemployed 70-year-old builders or joiners. Furthermore, as Blackburn points out, a flexible labour-force, capable of re-skilling as it ages, will require long periods out of work while it’s being re-skilled.
Encouraging mass immigration won’t work either. The pamphlet estimates that to keep the same ratio of workers to pensioners would require the population to grow to 136 million by 2050. That’s a lot of extra schools and hospitals. Raising the birth rate would also require huge public investment, such as better childcare facilities. Apparently, in France, the birth rate has soared since Jospin’s Socialist government introduced the 35-hour week. No wonder it was popular with everyone except employers.
Releasing housing equity is also not a serious option because it depends on the continued buoyancy of housing markets and the willingness of retired people to move away from family and friends into other areas with less good quality housing and environments. In any event, this option is only likely to be available to people who are comfortably off whose pension provision is likely to be sufficient.
Raising taxes is also not an answer, says Blackburn, because such a policy can only go so far before the economy starts to suffer.
Overall, he tries to present his arguments as being entirely consistent with the TUC’s pensions policy. I’m not convinced that the proposals are quite as straightforward as that. However, judging by its pitch, the intention is clearly to win as many trade union converts to the scheme as possible.
Some people may feel uncomfortable with the premises upon which the pamphlet is constructed. It assumes that we will continue to live in a society dominated by private enterprise and share capital, where decent social provision depends on economic performance. The perspective does not tend to be internationalist and may be open to criticism from those who believe that social democracy is essentially about building a European economic fortress with a good welfare system.
However, in the present context, I believe that it represents a realistic policy which poses the question, why is a Labour government ducking the issue of increased employer contributions to pensions? Furthermore, such a policy could result in a marked improvement in living standards for the elderly in this country.
It is an extremely useful and timely contribution to the pensions debate, and should be read by everybody on the left, and on the right for that matter too.
Plugging the Gap by Robin Blackburn, is a Catalyst Working Paper, www.catalystforum.org.uk