Some £30 billion was wiped off the value of employee pension schemes during last week’s turmoil in the world’s financial markets – putting workers’ pensions further at risk.
A report from Aon Consulting showed that last month’s £9 billion surplus in retirement funds has plummeted to a £21 billion deficit.
Employers are now likely to react to the losses by worsening the pensions arrangements of their workers.
Typically this involves closing down “final salary” schemes – which pay out a guaranteed sum – and replacing them with “money purchase” schemes that give no such guarantees, exposing workers further to the whims of the market.
Last week’s drop in stock prices came as financial firms started to panic over their exposure to bad loans in the US housing market.
Banks became reluctant to lend money to each other, creating a “credit crunch” that threatened to spiral out of control.
Worse is in store for workers if this crunch spills over into a recession in the real economy.
If firms start going bust, employees could find their pension funds going under.
Willie Riggins was convenor for the T&G union at United Engineering Forgings (UEF) in Ayr – a firm that went under in 2001 with a £12 million pensions shortfall.
He has been leading a campaign to ensure that UEF workers get their full pensions.
“There are thousands of people out there who have had their life savings snatched away,” he said.
“We need to get on the streets to get out what we paid for.”
The UEF pensioners will be joining the Unite union’s demonstration outside the Labour Party conference in Bournemouth on 23 September to press their case, Willie added, as well as lobbying the TUC during its annual conference.
While governments are reluctant to fully compensate workers whose company pension funds have gone bust, they are only too happy to throw vast sums of money at the financial institutions whose reckless lending triggered last week’s financial crisis.
And the credit problems created by so-called “sub-prime” mortgage debt in the US have not gone away.
The crisis in US mortgages could well lead to a much wider clampdown on consumer debt – one that would threaten the economic growth fuelled by cheap credit.