TOM GILL argues that Britain can afford a dignified state-funded pension and an efficient welfare state, but only if we redistribute wealth
COMPLEMENTARY or topup private pensions, as Labour puts it, are all the rage. Not only in Britain but also on the Continent, governments of all political shades are trying to cut back state provision and encourage the private sector to take up the slack.
German Chancellor Helmut Kohl has recently succeeded in pushing through a reduction in pensions from 70 per cent to 64 per cent of the final salary.
In Italy, Prime Minister Prodi has raised the retirement age from 53 to 57.
Committed to control their budgets to meet the Euro-club criteria, governments are also being heavily lobbied by business. They demand a cut in social security contributions in order to lower labour costs.
Companies and reforming governments say the state can no longer afford to provide a dignified universal pension for all in a world dominated by mass unemployment, (fewer contributors) and pensioners (more beneficiaries). We are told we must entrust our future income and security to the private pension industry.
In Continental Europe, where social security contributions are generally higher and private pension schemes are rare, it is particularly fashionable to argue that private pension companies are more efficient at allocating resources than the state.
They claim that private pensions can boost savings.
These can be reinvested in creating jobs, while guaranteeing higher pensions than those received from the state.
Experience does not confirm this. In Frank Field’s favourite example, Chile, which has pioneered private pensions, the funds have not delivered.
The North American pension funds, which pursue the highest return in the shortest possible time, are successful at raising profitability by decreasing the workforce.
In the search for high returns, and in a world of chaotic stock markets, enormous risks are taken with our future.
Robert Maxwell was not alone in risking pension funds and the recent Asian tremors shook many markets in which pension:funds were invested* According to leading French academic Rene Passet the arguments in favour of abdicating the role of the state in pensions reflect effective lobbying by the private pensions industry.
He says that exponents of pension reform fail to take into account the continual rise in labour productivity. Even with a stable or falling workforce, wealth’ creation is constantly growing.
Writing in Le Monde Diplomatique, he claims that at current French productivity growth rates, by . the year 2040 just . 1.7 workers will be able to produce. what it took 4 workers in 1995.
This should go a long way to supporting a bigger -non-work ing population. According to Passet, economic growth of just 2 per cent annually would be more than enough to cope with the rise in the number of pensioners.
The problem is not Britain, France or any other European country’s ability to pay decent pensions, but policies which have made the redistribution of wealth a ‘priority in favour of the rich.
The State has been deprived Of the means of supporting the disadvantaged. –
has narrowed the tax base considerably, and the cost of unemployment payments to millions diverts fimds that could otherwise be used for other benefits.
The term complementary is misleading. It suggests the icing on the cake. The British state pension, at around 63,100, is among the lowest in Europe.
In Italy, a country with similar national income, the state pension averages £5,000.
Italy’s pension scheme, which is funded entirely from payroll taxes, is hardly enough to make a pensioner dance away his retirement.
Occupational schemes only deliver to that diminishing and privileged part of the workforce that has been in continuous full-time employment and are increasingly irrelevant in a deregulated and insecure labour market.
‘British pensioners have seen their pension cut from 20.4 per cent of average male earnings in 1979 to 15.5 per cent last April. .
They have no chance to enjoy the fruits of their labours. There is no inexorable demographic or economic reason to deny them a dignified and secure income provided that wealth is redistributed.