Thursday, 30 June 2011

More Pension Lies Exposed

As workers in the State Capitalist sector of the economy strike against attempts by the Government to make them pay for the crisis caused by the Bankers and Financial Capitalists, the Capitalist State, and the bosses media have stepped up their campaign of lies.
The Tory mouthpiece the Daily Telegraph has a piece of typical yellow journalism claiming that the average teachers pension is the equivalent of a private sector Pension pot of £500,000.

They claim that a worker, in the private sector, would have to contribute 20% of their wages for 40 years to amass a pension pot of this size. There are, of course, a number of falsehoods in this story. The biggest falsehood is this.
Private sector pensions are crap not for any reason associated with workers in the State Capitalist sector, but because of the huge Ponzi Scheme that is involved in providing Private pensions. In fact, during the 1980's when Thatcher deregulated the Banks and Finance Houses creating the basis for the Credit Boom and Bust we have just seen, the Insurance Companies were allowed to get away with all sorts of misselling of private pension policies, including persuading workers in the State Capitalist sector, to leave their Pension schemes, and take out a private pension, which they were assured would be MUCH BETTER, based on Stock Market returns. This was all, of course, in the interest of profit making, the same profit making that then led to the crash of the Stock Markets in 2000, and the subsequent demolition in value of all those private pension schemes people had been conned into joining.

As the BBC showed in October last year, the way these schemes operate is similar to the kind of scheme that has landed some financiers in gaol. It reported,

“In one HSBC pension plan, £120,000 paid in over 40 years would result in fees and commissions totalling £99,900.

The company said its pension product is competitive.”

So, it is no wonder that if you are a worker in the private sector, and you are having two-thirds of everything you pay in simply pocketed by the Pension provider rather than it being invested in your pension pot, then, of course, you will get very little out for what you have paid in!!!
But, why is it that the Government, the British Chambers of Commerce, and the Torygraph, who shed crocodile tears over the poor state of pensions in the private sector, do not tackle the real issue, which is the corruption involved in the provision of private pensions by the big Financial Institutions, Banks, and Insurance Companies? Could it be that it is these same companies – the same ones who also caused the Financial Crisis through their reckless speculation in the first place – are their friends, and often made up of the same people as owners and Directors of these companies?
Its certainly the case that the Tories are financed by these big Capitalist companies, so, of course, they are not going to do anything that seriously challenges their profit making activities are they?

In fact, as Panorama reported, in the Netherlands their Pension schemes return benefits 50% higher than in the UK, and that was solely due to the elimination of some of those backhanders, fees and commissions that the British private schemes squirrel away to pay the million pound bonuses of the Fund Managers, and other bureaucrats employed by the big financial institutions. Labour had proposed to introduce a similar scheme, called NEST, to that in the Netherlands, but it should come as no surprise that the Liberal-Tories have scrapped that proposal that could have provided better pensions for workers in the private sector.

But, as I've demonstrated elsewhere, even that is not as good as the average £13,600 a year pension that the Workers Co-operative scheme at Mondragon in Spain provides for its workers, showing that if workers themselves have control over the pensions, they can do much better for themselves than can either private Capitalist rip-off merchants, or the Capitalist State.

If workers in the privatre sector were not being ripped off by the Tories and the Telegraph's friends in the big Financial Services companies, then instead of the 20% the Torygraph speaks of, we would be talking about 6%, or about the same as the average worker in the State Capitalist sector contributes to their pension!!!

But, of course the Torygraph do not contrast this fictional £500,000 Pension pot with the latest figures from Income Data Services on the fact that the average pension pot of the average FTSE 100 Director now stands at £2.8 million.
It provides the average Director with a pension not of the average £7,000 for workers in the State Capitalist Sector, but of £170,000!!! And, of course that average figure hides the fact that some of these Directors will be getting many times that. According to IDS, half these Directors still were in Final Salary schemes, and of these the companies they worked for paid on average 25% of their salary into the Directors Pension Scheme. Also bear in mind that high rate taxpayers like this also get 50% tax relief on their contributions into a private sector Pension, so they are, in fact, being subsidised not just by workers in the private sector, but also by all those taxpayers working in the State Capitalist Sector, whose average pension is less than a 20th of that received by the Directors.
Bear also in mind that many Directors on these FTSE 100 companies are mere names. They are former MP's, Lords, or former Executives of big companies who do not actually do anything other than turn up to a Board Meeting every so often.

The Government has also repeated the lie about workers living 6 years longer now than they did in 1980, and that this means that the cost of providing Pensions for this additional 6 years is higher. But, this is what is called in Logic a Non Sequitir i.e. the conclusion does not logically follow from the premise. The reason for that is quite simple. It assumes that there has been no other change, during that time, other than the fact that people are living longer.
Compare it with a computer memory. If we think about the number of years Pension to be received as being the same as the number of megabytes of RAM, then it would be like saying that because a computer today has 100 times as much RAM as one ten years ago, it must cost 100 times as much!!! But, of course, that is far from the truth. In fact, not only do computers today have more than 100 times as much memory as those ten years ago – and many more advancements besides that – but the cost of those computers today is LESS than that of computers ten years ago. The reason is that increases in labour productivity during that time, have meant that the cost of producing that memory has continually fallen.

The same is true with pensions. Taking 1980 as their base year is completely arbitrary. The relevant year is, of course, 1925, when the current Pension age of 65 was established. Since that time, average male life expectancy has risen from 55 to 76 today. A rise of 50%. However, as I showed in my blog The Big Pensions Lie workers productivity has risen by that amount and more just in the last 30 years!
It has been rising at more than 2% p.a. on average for the last 100 years, meaning that, just as that means that computers with more RAM today than 10 years ago are cheaper, so each year of Pension provision today costs less in real terms than it did 30 years ago, and much less than it did in 1925 when the Pension Age was first set at 65!

To continue the computer analogy, consider the Pension not as a sum of money, which only confuses matters, because of monetary inflation, i.e. the value of paper money continuallly falls due to more of it being printed, and increases in credit money, but as a quantity of goods to be bought by that money. Economists call the sum of these goods, the wage bundle, or in this case the pension bundle. It can be aggregated to a given quantity of units.
So, if there are a certain number of units of this bundle per year, then like the quantity of RAM, it has a cost. The real cost for society is then the amount of average social labour that has to be devoted to producing it. If the average worker consumes 1000 units per year, and had an average retirement period of 10 years, then in total they would consume 10,000 units. Let, us say that these 10,000 units in 1980 required 1,000 hours of average social labour to produce. Now, if the average worker enjoys 15 years of retirement their total number of units rises to 15,000 units. However, if, due to the same rise in productivity that has cut the cost of RAM, the cost of these units has fallen by 75%, then instead of it costing 100 hours per year to produce the 1,000 units in 1980, it now costs only 25 hours. So, although the average worker now consumes 15,000 units in their retirement, the cost of producing these units has in fact fallen to 375 hours. So, even though workers are living longer, and therefore consuming a greater quantity of pension goods, the cost to society of producing them has fallen from 1,000 hours to just 375 hours. In fact, given the massive rise in productivity since 1925 on a cumulative basis, it is clear that the real cost has fallen much more than this. That is why, despite continually rising life expectancy, during the 20th Century, it was possible not just to afford pensions, but even to increase the size of the bundle of goods it bought!

The fact, that workers life expectancy has continued to rise, as it did during the whole of the twentieth century, clearly is not the reason for the demand for workers to work longer. The real reason is that British Capitalism is uncompetitive compared with newly industrialising economies like China.
During the 1980's, it failed to invest in new types of industry, instead using the North sea Oil bonanza to finance mass unemployment in order to destroy the Trades Unions, and force British workers wages down. During that time economies like Germany and Norway restructured and invested into new high value industries, that could pay high wages and sustain high levels of pensions and benefits.
British capitalism under the direction of Thatcher and the Tories instead de-industrialised, attempted to build a low wage economy, and directed investment in to Financial Services, Retail Parks (selling Chinese and other imported goods), and into speculation on property, shares and other unproductive activity. It is that, which has left Britain unable to compete in the global economy, and which has left the profits of British Capitalism low compared with its foreign counterparts. The drive to get workers to work longer hours, and longer working lives is solely to compensate for the inadequacies of British Capitalism, and the failed policies of Thatcher and the Tories in the past.

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