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Title: The New Ageism
Author: Solidarity Federation
Date: Summer 1999
Language: en
Topics: ageism, Direct Action Magazine, United Kingdom
Source: Retrieved on April 7, 2005 from https://web.archive.org/web/20050407003451/http://www.directa.force9.co.uk/archive/da11-features.htm
Notes: Published in Direct Action #11 — Summer 1999.

Solidarity Federation

The New Ageism

Taking the piss out of fat, black or gay people is certainly not allowed

by Tony Blair, and quite right too. But discrimination against the old,

especially if they are female or not well-off, is the new fad in town.

It is at the centre of Labour’s pension plans.

Last year an article appeared in DA, which predicted that, despite

pre-election promises to the contrary, Labour would not restore the link

between pensions and average earnings (DA6).

This link was severed by Thatcher in 1979, and now the basic state

pension is worth only 14% of average earnings — a figure which will

likely further fall to 9% by 2030. The article also predicted that,

instead of restoring the link, Labour would incorporate the basic

pension into the means-tested benefit system.

It was suggested that Blair would find this a useful back door method of

ending the ‘pay as you earn’ pension system, under which for 50 years,

each new generation of workers has paid for the pensions of the

generation who have gone before them. This ‘solution’ would ensure that

the rising cost of pensions caused by the ageing of the population would

be met by people not government, by forcing them to turn to private

pensions, as the state pension withers away to worthlessness.

Just before last Christmas, with the cunning idea that it would receive

limited coverage due to the festivities, Labour slipped out its

proposals on pensions in a document entitled “Partnership in Pensions.”

In this, Labour committed itself to “a minimum income guarantee” for

pensioners, of £75 a week (single) or £116 a week (married couples).

This “minimum income” is to be delivered through the means-tested income

support benefit.

Under these proposals, the basic state pension is to remain lower than

the minimum entitlement pensioners can claim through income support (the

basic state pension for single people is set at £66.75). In other words,

if you only have your state pension, you will have to claim income

support to ensure you get the extra £8.25 “minimum income” entitlement.

So Labour has incorporated into the benefit system the position that

developed under Thatcher, whereby some 3 million pensioners were (and

still are) forced to claim income support because of the pitifully low

level of state pension. This figure is now set to increase as the real

value of pensions continues to decline, forcing ever-increasing numbers

of pensioners with a lifetime of work and ‘pay as you earn’ National

Insurance taxes behind them to claim income support.

changing rules

Under the post war settlement that led to the creation of the welfare

state, workers were informed that, by paying into the new National

Insurance scheme, they would receive in return a state pension which

would provide them with security in old age. The scheme was introduced

to replace the hated means-tested poor relief, under which retirement

meant surviving through old age in abject poverty. The state pension was

seen as providing a decent standard of living in old age, after a

lifetime of work. Labour’s proposals ensure that the pension will

effectively disappear, to be replaced with means-tested income support —

an updated name for poor relief. In fact, the only difference is that,

under poor relief, at least you didn’t have to pay National Insurance to

cover a promised future pension.

Even if you have managed to save twice for old age by paying for both

National Insurance and a second pension, you may well find yourself

losing out under Labour’s “Partnership in Pensions.” Again, it is the

worst off who will suffer. If you have a small amount of savings or a

small second pension, you will find it disqualifies you from claiming

the means-tested income support. Your private/second pension will have

to top up what is left of your basic pension just to get to the levels

you would get anyway under Labour’s “minimum income guarantee”.

For example, upon retiring with £10,000 saved in a personal scheme a man

will receive just £800 a year pension — even less for a woman because it

will be assumed she will live longer. After tax, this is just about the

£8.25 they would have received from income support under Labour’s

minimum income guarantee. In effect, they have been robbed of their

extra savings. Experts are now stating that, unless people can manage to

save a lump some above £40,000 in their personal pension scheme, under

Labour’s proposals, they may as well not have bothered.

The obvious way around wrecking small savings would have been to lift

the state pension scheme to the same levels as the “minimum income”

received under income support. This would have avoided penalising those

on low income who have managed to scrape together a small income from a

second pension. It would also have spared those dependent on the state

pension having to claim income support which, being means-tested,

involves itemising their income and spending. This is so traumatic and

degrading that people often prefer to avoid it, proven by the fact that

a large number of pensioners are unwilling to claim the income support

they are entitled to. Aside from this is the considerable saving on

administration cost s, by avoiding means-testing.

However, even the modest guarantee that the basic pension would be kept

at the same levels as income support would have breathed new life into

the state pension system — something Labour is keen to avoid. For this

would ensure that the state pension would keep some value as it rose in

line with income support. By contrast, under their proposals, Labour can

allow the state pension to whither away, while arguing that minimum

income support is there to act as a safety net for pensioners. Labour

couches their proposals in terms of ‘choice’; you can be in dire poverty

in old age, receiving minimal income support, or invest in a personal

pension scheme to have a reasonable retirement. In reality, few will get

the second choice. Undoubtedly, we are witnessing the slow death of the

state pension.

game plan

As indicated between the lines of the rest of Labour’s “Partnership in

Pensions”, there is a whole game plan to be introduced to ensure the

decline of the state pension. One of the centrepieces of the proposals

is the so-called “stakeholder” pension, targeted at low to middle income

groups. The level at which Labour expect people to begin switching to

private provision can be gauged by the fact that the stakeholder pension

will even be targeted at those earning less than £9,000 p.a. By way of

encouragement, various tax breaks and cuts in National Insurance

payments will be offered to those switching to private pensions. It is

estimated that this direct move away from state funding will cost the

treasury some £5 billion. This compares to the £2.5 billion Labour

intends to spend on minimum income support — a figure which will fall

considerably if large numbers of those in receipt of state benefit fail

to claim their £8.25 entitlement. Clearly, Labour is keener on priming

the private sector than supporting pensioners.

The real gains for the state under Labour’s plan are in the long term.

They expect the number of people with a private pension to increase from

the current 40% to 60%. This will ensure that Britain alone in the

industrialised world will avoid the financial time bomb built into the

‘pay as you earn’ system.

freedom to be poor

With Labour’s plan, future generations will finance their retirement

through personal pensions. This will mean gross inequality in old age,

with the very low paid, long term unemployed, long term sick and carers

who have been unable to build up a private pension all dependent upon

income support. This income support will itself be squeezed

relentlessly. To ensure people are forced to go for and maintain private

pensions, levels of income support will have to be kept ridiculously

low, to maximise the incentive (similar ideas have already been found to

work by Labour, forcing younger people to take desperately low paid

jobs).

Clearly, Blair feels gross inequality is a price worth paying to avoid

the problem faced by countries like France, where private pension is

rare and over 80% of the population are dependent upon state pensions

funded by the ‘pay as you earn’ model financed through taxation. As the

French live longer and the number in work falls compared to the number

of pensioners, the burden of tax on those in work can but increase in

order to maintain adequate state pensions.

The reality is that greater equality through taxation flies in the face

of Labour’s free market orthodoxy. This is why they have gone for

private provision. While unsurprising, this contradicts their claim to

be the party of equality — and specifically, their claim to be the party

which favours greater women’s equality.

worse for women

Women, who still carry the burden of raising children, while

increasingly caring for the elderly and infirm, have long been

discriminated against through the pension system, because they face long

periods out of the labour market or in part-time employment.

In the past, many women have been unable to pay enough National

Insurance contributions to qualify for the basic state pension, let

alone save in the form of a second pension. Rightly, this was one of the

criticisms of the state pension. The new proposals make matters even

worse, since built-in inequality will particularly victimise the many

women who are carers and mothers, and so cannot save for old age with a

private pension. The vast majority of people facing an old age of

poverty will be women.

If, as a way of squeezing welfare, the retirement age were to be lifted

at some future point (not out of the question — you saw it here first!),

the situation for women would get even worse. For those with private

pensions, the option would be there to take early retirement. The better

off you are, the greater your options to retire earlier with better

pension income. However, those without a private pension would simply be

eligible for work for much longer. If Labour are still using the same

rhetoric as they are today, no doubt these unfortunate people will be

constantly being empowered back into work by enabling them to keep a

percentage of their benefit whilst working.

the unthinkable

Under Labour’s pre-election talk, the massive shift to greater

inequality was not supposed to happen. Though unequivocal commitment to

restoring the full link between pensions and earnings was avoided, a

full pension review was promised, headed by Frank Field. Blair duly gave

Field the job, telling him to “think the unthinkable” when approaching

welfare reform. Well, Field did just that, and came up with a scheme

which proved completely “unthinkable” to the Labour leadership.

Field’s pension proposals did away with the state pension, but the

replacement was based on universal pension provision and did seek to

ensure equality for the long term unemployed, carers, part-time workers,

etc. He also proposed setting up a new national pension scheme, into

which both employers and workers would be legally obliged to contribute.

His scheme would require those on higher earnings to contribute more,

and the state to make up the contributions of those not in full-time

work, thus ensuring adequate pension provision for them.

Field is a Catholic and a staunch supporter of the family. He hoped this

would encourage women to stay at home to look after the family, the

threat of being penalised in later life through having no pension having

been removed. His approach was radical in that, although the fund was

dependant on being invested on the stock market to ensure it maintained

value, he proposed that it be placed under the trusteeship of building

societies and trade unions. He also hinted that ways could be found of

ensuring that the national pension funds could be invested for the

national good.

The City was immediately hostile to Field’s proposal on two counts.

Firstly, it threatened the growing private financial sector, not least,

the money gained by the private sector from the massive £12.2 billion

handed out by the state in the form of tax breaks, without which the

lucrative private pensions sector would not have such well-lined

pockets. Secondly, it threatened to take control of the massive pension

fund out of the City, from which they gain both vast profits and not

inconsiderable financial power.

There was no need to worry. The City has such a grip on Blair, that

there was no question of Field’s proposals getting anywhere with Labour.

He is now an ex-minister.

scandals ahead

In what amounts to a massive climb-down, Labour’s “Partnership in

Pensions” announces that Labour has decided to entrust the management of

its new flagship ‘stakeholder’ pension to the very people who brought us

the pension miss-selling scandal. They will also be allowed to ‘charge’

handsomely for the work of managing the fund (perhaps ‘defraud’ would be

a better word). The fact that investments will remain in the hands of

the City is also a blow to those who had argued that the fund generated

by the new stakeholder scheme could be used to promote national

investment, or even brought under state regulation to ensure ethical and

sustainable investment.

To make matters worse, there is little sign of Labour reforming the

trust laws governing the management of the so-called ‘final salary’

schemes which still make up the majority of company pension schemes.

These date back to the 17^(th) Century, when they were developed to

govern the management of funds of those deemed incapable of managing

their own affairs, such as ‘minors’, ‘lunatics’ and (wait for

it)…’women’!

The trust laws have been used to muddy the waters, ensuring that

individuals have little say in how pension surpluses built up due to

rising stock markets should be utilised. It is these which have allowed

large-scale fraud such as the Maxwell scandal, plus other legal fraud

such as pension holidays, the utilisation of pension funds to pay for

redundancies (such as recently in British Telecom), the seizing of

surplus funds after privatisation (such as the government is now doing

with the National Bus Company funds), and so on. It is estimated that,

at present, some £60 billion of surplus funds are sitting there waiting

to be snatched.

In refusing to change the law, Labour has argued that these schemes are

in decline and are gradually being replaced with the so-called “money

purchase” schemes. Though it is true that most new schemes are of this

type, there remains the no small matter of £60 billion held in surplus

pension funds. The way the law stands (and will now remain), this can be

effectively stolen or misused by the holding companies at any time.

new scheme new fraud

Nor has Labour so far said much about the obvious failings that are

already coming to light concerning the still-new money purchase schemes.

The most obvious problem is the enormous amount of money charged by

private pension companies to manage them. Typically, these

‘administration’ charges can eat up a third of the total money saved by

the individual policy holder over a lifetime. This outrageous situation

is being worsened by wider changes in the economy — most notably the

onset of lower interest rates.

Money purchase schemes are based on the idea that people put money into

a scheme, which is invested on their behalf. On retirement, the policy

is “cashed in” to provide a lump sum which is exchanged for guaranteed

annuity or dividend payable on a monthly basis. This annuity is

calculated on current interest rates, which are now so low that

pensioners are finding their annuity consisting of next-to-nothing. For

example, at current levels, a money purchase pension saved over the

years which totals £100,000, would currently generate an annuity of just

£5,500.

Nor can pensioners simply take their lump sum and run. Under the money

purchase scheme, the lump sum remains under the control of the company.

Many people are astonished to find that they are forced to accept an

even lower annuity to ensure the lump sum is not confiscated by the

company, should the policy holder die prematurely.

big picture

The problems with individual private pension schemes pale into

insignificance compared to the fact that it is the stock market that

underpins all pension schemes, whether personal or company. Pension

funds are based on the idea that, over the long term, the stock market

will only go in one direction — up. This is one massive assumption.

Should the stock market collapse, a whole generation of pensioners may

find themselves queuing for income support.

The effect of pension funds on international finance is rarely

mentioned. At present, there is some $10,000 billion of pension fund

sloshing around the world’s financial markets in search of higher

returns. The management of this colossal piggy bank is in the hands of a

small number of financial consultants. A recent study found that 65% of

pension fund transfers in Britain were made on the advice of just four

such consultants. Not only do they all operate on the same investment

criteria (leading to the so-called herd instinct), they are also

notoriously short-termist, forever moving money around in search of

higher returns.

Short-term transfer of huge funds was one of the major factors in the

currency turmoil that engulfed East Asia last year. In return for

massive return, pension fund managers lent money on weak security, much

of which went into property development, which promptly collapsed,

creating panic and hasty withdrawal of funds. The massive investment

followed by even more massive withdrawal created financial turmoil that

threatened “meltdown” of financial markets world-wide.

So, we are left with the paradox of individuals contributing to pension

funds which are managed in such a way as to bring markets to their

knees, wrecking the long-term security of the individual pensioner. The

decision by Labour to plunge further down the road of privatising

pensions has already led to a backlash. The state pensions lobby has

mobilised support for the link between pensions and wages to be

restored, bringing the prospect of forcing at least a partial climb-down

by Labour prior to the next election.

Through direct action, there remains the possibility of forcing a more

permanent change of direction. In this, all possible support is needed

for the state pensions lobby, for not only does the issue of pensions

effect us all, in many ways, the issue gets to the heart of what kind of

society we want. The state pension scheme is based on the idea of social

solidarity. Until a society based on true equality and solidarity is

secured, this is a principle that must be defiantly defended.