21 June 2010

Equitable Life

In so many of the areas that are now the source of public debate, the money system is being used to conceal a sleight of hand that transfers the value created by working people into the bank accounts of the wealthy. This is true of the pensions system, so before we listen to the pronouncements and proposals of the politicians charged with persuading us to suffer poverty in our old age, we should remember how we reached this situation we are in.

In The Future of Money, Mary Mellor anatomises the switch from public and company pensions to private pensions as part of the financialisation of life in the UK during the 1990s. Bribed with their own money on the up-swing of the capitalist business cycle, many were persuaded to leave company schemes, forsake the contributions made by their employers, and join the short-term orgy that was people's capitalism. Working people who had historically prepared for their old age through mutual savings and friendly societies became competitive individualists.

In reality, becoming involved in the money game as a punter was always going to be a mistake, dependent on the mistaken assumption that money has some independent value. The whole debate is couched in terms of putting away money now to spend later. But what is important in our old age is the existence of good public services and people to care for us. Accruing extra cash may put you ahead in the competition for these as they dwindle under right-wing governments, but being part of a society that takes responsibility for social welfare for ethical reasons is always going to be a better protection.

So how might we think about pensions in a balanced and grounded way? In the figure I have illustrated a person's productivity curve over their life-course. When the curve is below the line the person is in commitment to the community, receiving more than they contribute; above the line the reverse in the case. Give or take a few years for earlier retirement or more time spent in education, each person is in the workforce for 40 years, or around half their expected lifespan. The curve might look different for people with physical vs. intellectual employment, and for those with a special call on society, because of illness or disability, for example.

The conclusion is a simple one: we spend half our lives being productive and the other half relying on other members of our family, group or society. Since we are all in the same position we can abide by the Golden Rule and contribute more in the time we spend above the line for the benefit of those below the line, knowing that one day we will ourselves be below the line and that members of our own family group are in that position right now.

Bearing this image in mind we can now try to compare the security offered by two contrasting schemes: a private pension scheme and the teacher’s pension scheme. In a company scheme your money is used to buy stocks and shares. You security is based on the schemes of Darth Trader and his colleagues in the Square Mile, whose activities are routinely discussed in academic economic papers as examples of irrational behaviour. You are relying on your ability to gamble effectively now, to make yourself secure in 20 or 30 years’ time.

The Teachers’ Pension, by contrast, is a real-time scheme. The contributions I make every month pay for the pension of teachers who are now retired, my mum for example. So I only have to bet on the fact that, when I come to retirement, people will still be having children and teachers will still be being paid to educate them. This seems a much safer bet than the stock-market. At a larger scale, of course, this is exactly how a properly funded state pension system would work.

We may see in our fear about pensions a projection of the selfishness that is encouraged in a capitalist society. We know that all our miserable lives we have only been storing up material value. We have not been establishing the relationships of trust and love with our friends or our children that will enable us to live comfortably in dependence on them. We have fallen into the economist’s trap of turning all relationships into financial relationships, increasing our children’s allowance to make up for the fact that we have no time to spend with them, for example. Unlike the older people of more traditional societies, we know that when the emotional balance-sheet is tallied we will be in serious debt. We will have no hope except our money.

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