The recent crisis in the pensions industry shines some light upon one of the biggest money making schemes in the history of capitalism. The system of “deferred wages”, where workers put money aside until after retirement, creates huge pots of money. It drives much investment in firms and infrastructure—as well as naked profiteering.
The Local Government Pension Scheme, for example, has 2 million people paying in to it and its market value is a whopping £342 billion. That makes fund managers some of the richest spivs in the City of London.
But September’s toxic mini‑budget put a spanner in the works of the industry and illustrated just how fragile the system is. Panic in the market pushed pension fund bosses to dump government bonds, known as gilts. As their value plummeted, the Bank of England was forced to intervene.
The value of pension fund assets was falling so fast that the Bank said the whole industry could collapse like a pack of cards. And it’s not just the mini budget crisis that is driving instability. Legal and General’s standard pension fund has lost about 10 percent of its value over the past six months.
Market turmoil is not the only factor at play. Employers looking to cut costs are eager to find ways to cut their contributions to workers’ pensions. Final salary pension schemes pay out a percentage of workers’ earnings at the end of the working life. But they have largely been replaced by career average and defined contribution schemes.
Both replacements offer a lower pension, with defined contribution schemes completely dependent on the vagaries of the market. No wonder struggles have erupted against bosses trying to force workers onto such schemes.
Defined contribution schemes in particular play into the idea that everyone has a shared interest in the rollercoaster of the stock market. But passing the risks of pension investments to members is all about cutting employers’ costs and making profit for those managing the scheme.
It’s not just those on private pensions that are seeing their value hacked away during the cost of living crisis—the state pension is hit too. The government’s “triple lock” guarantees that state pensions will rise by the highest of the inflation rate, average wage rises or 2.5 percent.
The commitment was part of a 2010 Tory-Lib Dem move to shore up votes from older people. But new prime minister Rishi Sunak has so far been reluctant to commit to its future. And people are waiting longer than ever to receive their pensions. The state pension age has increased sharply and is set to increase even more. The way the age was equalised between men and women—levelling up to the highest age—has left millions of women in poverty.
The Tories’ austerity regime has cut life expectancy—reversing a trend where people live longer. So the time you have left to enjoy life after work has been slashed. There are historically high numbers of people in their sixties who are still working.
This is because of a lack of money and a meagre state pension, not because they’re desperate to one day drop dead at their office computer. The state pension is just £175.15 a week for those who reached state pension age after April 2016, and only £141.85 for older pensioners.
Workers deserve a cast‑iron guarantee of a dignified life, not one that is tied to the economy that the Tories are all too happy to gamble on. Discussions of the stock market fluctuations can sometimes make it seem like there’s an abstract power guiding market forces.
But we know what the problem is. The rich are robbing our money for the sake of speculation, meaning workers could receive less in their pensions.
This is the fourth in a series of columns about economics
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