The scandal of private sector pensions

The collapse of private sector pensions is one of the greatest outrages of our time.  Just over a decade ago nearly half of all private sector workers were in a workplace pension scheme; today it is only a third.  The cost of that decline will be borne by the taxpayer through increased eligibility for means-tested benefits such as pension credit, housing benefit and council tax benefit; greater health and social care costs; and an increase in our already shocking levels of pensioner poverty.

However, while pensions have been ripped away from ordinary workers, the directors of large companies continue to net very generous pensions averaging £175,000 per year in retirement.  These generous fat cat schemes at the top lapped up the bulk of the £37.6bn in tax relief that private sector pensions get every year.

The only reason why companies have dumped pension schemes is to give more money to senior management and more profits for shareholders.  Corporate profits have expanded from 13% of GDP in the mid-197s to 21% today, and executive pay has risen several times the rate of the average worker.

In the 1990s, according to Inland Revenue figures, corporate Britain saved itself £18bn through pension holidays, while employees continued to contribute.  As the stock market declined many pension funds went into deficit – employers cut pensions rather than repay the monies avoided.

This graph shows the proportion of private sector workers in defined benefit schemes (red line) compared with corporate profit margins (grey line).  What the graph shows is that in the last 13 years the level of corporate profits has remained relatively constant, yet companies have closed defined benefit schemes at an alarming rate.

The number of private sector employees in defined benefit schemes had fallen from 34% in 1997 to 11% last year.  At the same time the proportion of workers in any occupational scheme has fallen from 46% to 34%.  Despite all the talk of corporate social responsibility, fewer and fewer companies show any responsibility to their own staff.

For the 11% of private sector workers still in a defined benefit scheme the average pension is £5.860 – about the same as the £5,600 average public sector pension, which demonstrates that is that is not a ‘gold-plated’ amount.  In fact it is less than half the income of a full-time worker on national minimum wage.

It has been estimated that changing pension indexation from RPI to CPI in the private sector would save employers £100 billion over the lifetime of existing schemes.  This would be a direct transfer or wealth from employees to shareholders.

Women in the private sector are likely to be in a far worse state than men – not just because of the earnings gap – but because many of the jobs done by women in the private sector (especially retail, catering and cleaning roles) come with no pension provision at all.

The media is full of scare stories about the escalating and unaffordable costs of pensions, and that people are living too long.  The reality is that employers are failing to pay their share – and that is unfair.

In 2012 the National Employee Savings Trust (NEST) will be established for workers with no occupational scheme.  However, NEST will take more from employees than employers and will not provide a decent pension.  The main beneficiaries will be the private pension industry.

Attempts to pit private sector workers against public sector workers are divide and rule.  The responsibility for the removal of pensions for private sector workers lies with employers and shareholders.

Private sector pensions are also heavily subsidised by the taxpayer.  Research by Richard Murphy shows that private sector pension schemes received £37.6bn in tax reliefs in 2007/8 – that same year they paid out pensions worth only £35bn.  As Murphy states, “Pension fund performance over the last decade has been a history of almost perpetual loss making despite the enormous subsidies.”  A quarter of that pensions tax relief goes to the richest 1%.

2 Comments CherryPie on Nov 28th 2011

2 Responses to “Fair Pensions for All – Part Three”

  1. The collapse of private sector pensions is one of the greatest outrages of our time.  I was wondering if these people has claim to something like our social security for our retirees. Even if here a company or you invest into a private retirement. I don’t know any way of total getting out of pay in to the social security fund.
    Sure there people over here draws off more then one retirement funds. But usual social security is our higher paying but not always.

    Those who invested in a private retirement fund can and is eligible to draw form social security. Even if the private fund lost money.

    There been employers fee and far between taken out the payment of social security and never send it in. In short of it…it wasn’t a pretty sight.

    But a lot of those who invested in private companies for there retirement sure got took when the banking clasp.
    Here is a little trivia…Back in the 1920’s pre great depression area. Here in United States they tried to start up private retirement funds and when market crash in 1929 it went wayside with the crash.

    Women in the private sector are likely to be in a far worse state than men especially retail, catering and cleaning roles) come with no pension provision at all.
    See here they would pay into our social security fund. Usual these jobs are low pay and still you have to pay your 8% into social security. Working with these job for years your social security benefit wouldn’t be that much once you retire.
    Usual these place don’t offer a private or a company retirement plan.

    But we here in United States those who are teachers, firefighters, or police officer. Does have a government pension other then our social security. But they can draw both once they become of retirement age.

    So I guess we have three retirement programs here. Social Security which everyone pays in, the private ones, and those who work directly for our government.

    I’m leaving you two links that explain our social security.

    So can a person in England draw more then one retirement check from more then one source?

    • CherryPie says:

      Thanks for the links, I will have a look at those in detail when I have more time.

      We have what is called a state pension which is in addition to either a private sector or public sector pension. On it’s own it is not enough and people can get means tested for top ups, if they don’t have any other pension incomes. You will see more on the state pension in part four.

      So yes, more than one retirement check can be drawn.