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Democrat Broadsheet (Number 14)

After directives on railways, postal services,
air traffic control and energy

EU Directive will put pensions at risk

Report and Research - Ron Dorman

A proposed EU Directive and an Action Plan for Financial Services would line the pockets of transnational companies and pension institutions. These were agreed at the Lisbon 2000 EU summit attended by Prime Minister Tony Blair.

The EU Directive, which will have the force of law, has no concern for the social consequences in a measure the Barcelona European Council wants completed this year.

EU documents and speeches by EU Commissioner, Frits Bolkestein, who has responsibility for these matters, expose the proposed Directive's aim. The whole burden of pensions is to be shifted on to people in work, other family members and charities as in Victorian times and remove altogether any provision for pensions by employers through taxation. The Directive and the Pickering and Sandler proposals to government are outlined below.

State pension schemes

The EU pension scheme proposals claim Member States can decide the extent to which they rely on state pensions such as Pay-As-You-Go systems or encourage pension schemes but in reality attack state pensions!

Bolkestein says, people in the EU are living longer and fewer people are of working age to support them. He could have added unemployment (there are four million unemployed in Germany alone) which makes matters worse.

Government backsprivate sector

The New Labour government's aim is to increase pensioner's income from the risky private sector to 60% from the present 40%. Secretary of State for Works and Pensions, Andrew Smith, believes in what he calls the right combination of state and private pensions but without state pay-as-you-go pension domination.

The same process is going on in Germany. Ulla Schmidt on German radio said people would be encouraged to turn towards private savings plans to finance old age (Morning Star 14 Jan 2000).

In place are severe permanently imposed Maastricht Treaty limits on government borrowing and debt for the euro and Economic & Monetary Union. Coupled with this is an EU policy of low Big Business taxes. All this means state pensions will either be phased out or maintained at the lowest level people are prepared to tolerate. MP James Arbuthnot said in Parliament's July 2002 pensions debate:Most people think there will be no retirement state pension by the time they retire. They are living longer, saving less and retiring early".

Safest pension

Adequate state pension provision is the best and safest form of pension for everyone. The loss of state pensions will mostly affect people still of working age and future generations. It is understandable that young people do not think about pensions (being interested in enjoying life) but they need to defend their future state pension now as most MPs only seem ready to defend their own!

The MPs' and New Labour government's failure to implement the long-standing call by pensioner organisations to link state pensions to earnings while voting enhanced pensions for themselves in July in a deal part-funded by taxpayers shows concern only for themselves. MPs pensions will now be calculated on a 40th instead of a 50th of their final salary. And for an increase of pension contributions from six to nine per cent MPs, currently on £55,118 annually, will be able to retire on two-thirds of final salary after 27 years instead of the current 33. This translates into an occupational pension of £707 per week.

Occupational pensions

The EU Directive aims at linking funded pensions to employment to provide for pensioners in future by allowing these funds to "fully benefit" from the euro and the EU Internal Market thus leaving about 18 million unemployed across the EU out in the cold. EU documents say pension funds and life assurance companies are the last major financial service entities not to "enjoy" the benefits of an EU Internal Market legislative framework of 2,300,000 million euros in current assets and cover 25% of pensioners. It proposes investment rules should not be too restrictive and investment in shares should not be excessively penalised in order that each institution can put in place the most secure and efficient policy. This is "EU speak" for giving these institutions free rein with working people's savings for their old age.

Directive supports TNCs

European transnational companies want to raise capital and have access to investors across the European Union without having to comply with 15 different sets of national legislation. The proposed EU Directive supports them and uses the well worn statement that shares provide for high returns and low volatility over the long term and therefore institutions for retirement provision should have the right to manage schemes on a cross-border basis which is not currently possible. British Petroleum (a European Round Table company) estimates that managing separate pension schemes costs an additional 40 million euros every year but there is no mention of any savings being invested in the pension funds.

Commissioner Bolkestein complains EU Member States often oblige pension funds to appoint asset managers and custodians of the same nationality that has a negative impact on competition and costs which discriminates on the grounds of nationality. He says this restriction has no place in an EU prudential framework. Bolkestein claims management of the current 2,000,000 million euro pension fund assets (expected to rise to 5,000,000 million by 2010) should be by the most competitive providers.

That EU statements on occupational pension provision relate only to savings to be made by EU transnational companies and not better pensions to employees, gives the game away. The aim is: increased profits and slashed pension costs for Big Business.

The world-wide collapse of share markets like a pack of cards recently have given pensioners little confidence in pensions based on them. Markets are depressed partly because of the sordid Enron, WorldCom and Xerox scandals but also because of growing fear of a world trade recession. From the days of Maxwell, companies such as Enron have shown only utter contempt for their employees and plundered their pension funds.

Confidence trick

Bolkestein says people increasingly want to control their financial future and manage their savings but fails to explain how savings in personal pension schemes achieves this end. It is a con trick to use pension saver's funds to take risks Big Business itself refuses to take. The EU wants institutional investors to link pension savings to the real economy and place some of their portfolio in risk-capital to assist the expansion of small and medium size businesses and the creation of new firms. If this is such a good idea let Big Businesses put their own funds in risk-capital, not gamble with hard-earned pensioner's savings.

In defined contribution schemes, Bolkstein says plan members bear the investment risks and are now the only schemes available on the Italian market. Under these arrangements, acquired rights are easier to transfer from one job to another. This is in line with a modern and more flexible economy. These contribution schemes also make it easier to transfer from one country to another; a key EU aim of creating a "flexible labour force" where workers are expected to move from one country to another in search of jobs.

Cost of occupational pensions

The EU document - Proposal for a Directive on Occupational Pensions - frequently asked questions, (October 2000) refers to the cost of occupational pensions. It states: "If this cost is too high, everyone loses out: in final salary schemes, employers have to contribute more for a given level of benefits, with a negative impact on labour costs."

In plain language, the employers have to pay more. Latching on to this idea, Caparo Industries, a steel company owned by "Labour" peer Lord Paul, is closing its final salary scheme and has substantially worsened pension conditions. The decision has already led to action by steelworker's union, ISTC, to defend the final salary scheme with further action scheduled.

Minority of employers have pension schemes

Tesco have retained final salary schemes but announced in March 2000 contributions would be increased by 15%. Tory MP David Willetts estimates only four out of every ten companies now have final salary pension schemes. Companies are closing down final salary schemes "because they can't afford them" but in "good times" took pensions "holidays" because of "surpluses" saving £19,000 million!

Reduction of employer labour costs is also Alan Pickering's theme in the government sponsored pensions review. He says employers should be allowed to scrap index linking and benefits to surviving partners.

A Financial Times article (13/14July) by Alexander Jolliffe, says the review also proposed benefits could build up more slowly as members pay into final salary schemes, leading potentially to a 20% drop in benefits. Pickering is also quoted as saying: "Occupational schemes could not afford to provide traditionally-generous pensions because lengthening life expectancy had raised the cost of index-linked pay-outs". He must have read the EU Pensions Directive proposals!

In response to Pickering's review, GMB general secretary, John Edmonds, said "We could be looking at the biggest pension rip-off this century". Amicus general secretary, Roger Lyons commented: "Removing the obligation on employers to increase pension benefits with prices will inevitably lead to pensioner poverty in the long term. The report is a cop-out that shifts the cost of the crisis from the perpetrators to the victims". TGWU general secretary, Bill Morris, branded the Pickering report "a charter for poverty in retirement". Fine talk by these union leaders but to date no joint action against Pickering's proposals or calls for people to oppose this attack on pensions! Why not, when they are the leaders of millions of workers affected, the best time to oppose Pickering's plans is now before they become government policy? Trade union leaders should also show solidarity with the steelworkers union ISTC in its campaign to stop Caparo ending final salary pensions.

Private Pension schemes

The government sponsored report by former banker, Ron Sandler, concentrates on private pensions. Sandler accepts the private pensions industry is suffering a massive loss of public confidence triggered by mis-selling scandals involving billions of pounds of saver's money. This reached its climax with the near collapse of Equitable Life resulting in a struggle by savers to rescue what they could of their future pensions from the company.

Sandler wants to make private pensions simpler, easily understandable, readily available and avoid excessive selling and running costs as an inducement to a highly sceptical public to buy these products. But with savings of earnings down to 3.75% from 9.5% and collapsed share prices the system is in severe crisis.


The trade union leaders and pensioners' movement must jointly make the following demands on the government to resolve the pensions crisis:-

* Implement the National Pensioners Convention demand that pensions be linked to earnings. Britain, the world's fourth richest country, can afford this most secure form of pension linked to earnings.

* Setting the state pension at the Minimum Income Guarantee (MIG) level would give a reasonable pension and one that could increase with earnings as in fact the MIG has since 2000. Overall this would be a more cost effective pension scheme than MIG that depends on complicated calculations and means testing. At April 2002 a MIG for single person aged 60-74 was £98.15 and basic pension was £75.50 a difference of £22.65. If providing this pension means increasing taxation on Big Business, and opposition to EU policy so be it! ><

* Keep SERPS as the secondary pension. MP Terry Rooney, says that people in SERPS from when it was introduced in 1975 and today on fairly average earnings are getting about £60/wk extra. A good top-up on pensioners' basic pension!
* Use surplus pension funds to regenerate our manufacturing industry in conjunction with small and medium size businesses with strict guidelines on how funding should be used and trade union involvement. This would create jobs, help generate wealth, help overcome Britain's £90,600 million cumulative trade deficit with the rest of the EU (1973-2000 figure) and ensure the future viability of pensions. At present the National Insurance fund surplus currently stands at £18,700 million according to Neil Duncan-Jordan, communications officer for National Pensioners Convention (Morning Star 19 July 02).

* Defend current final salary pension schemes and benefits for surviving partners.

September 2002

Pension shortfalls at 75% of top firms

This was a headline in the business section of The Times on 3 August 2002. The article went on to state "the UK pensions industry is facing an unprecedented crisis."
The crisis is most profound amongst half of the top companies in the FTSE 100. "Companies with the biggest deficits are BT with a £1.8 billion shortfall, HSBC with £1.2 billion and ICI with £499 million."
This evidence from a research published on 2 August by Hewitt Bacon & Woodrow "raised fresh fears about the future of employer-sponsored schemes".
Roger Lyons, joint general secretary of trade union amicus said: "Pensions are the biggest issue for employees today, not pay and not conditions, for the first time in more than 30 years."
Mr Lyons said employers had an obligation to make up shortfalls: "Companies did extremely well from their pension when the markets were going up and up. They had surpluses and pension scheme holidays. Now we are in a serious trough, they have to take the rough with the smooth."