A Matter of Life and Debt

There has always been something about the nature of pension calculations that is faintly unsavoury and few roles in life can be as unattractive as that of the actuary. While we all take a vague interest in our life expectancy as well as our life expectations, we frequently balance these with superstitious and childlike attempts to ensure our health and well-being, whether these take the form of prayer or sporadic bursts of jogging. For the actuary, the minute calculation of the likelihood of death from a range of causes is the bread-and-butter of life.

On Wednesday we will see millions of the people who ensure that we live long and healthy lives, and that we enjoy high standards of well-being, going on strike to protect their own security in a retirement they hope to live to see and to enjoy. Investing in a pension is itself a gamble, since a significant proportion of people die before reaching the age of 65. As retirement ages increase and the pension funds those working in the public sector have saved become the subject of the acquisitive attention of politicians, the risks can only increase, making the prudential decision to invest for your old age a much less appealing one.

A rational government would applaud the regularity with which those working for the public sector save for their old age, rather than attacking the union officials who encourage them to do this, and then defend the conditions under which those savings are paid back to them in retirement. Such a government would also value the contribution to the life of the nation made by these servants of the public, rather than consistently downplaying it relative to the 'wealth creation' of the private sector.

More typical of private-sector motivation and value-system is today's news that Rolls Royce has agreed a 'longevity swap' with its pension provider, meaning that it is gambling against its employees ability to live a long and healthy retirement. The company has transferred its unwillingness to countenance a large number of retirement years on the part of its former employees to Deutsche Bank financial services. As pension shifts from being a system of care and mutual support to one of risk and financial reward, one cannot help wondering how long it will be before we are offered a cash incentive to do the decent thing, and make away with ourselves before our allotted time. A moral hazard if ever there was one.
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Resist Divide-and-Conquer Tactics

The Tory rhetoric over today's strike is a clear attempt to divide and conquer. We are told that the poor downtrodden taxpayer is subsidising the fat cats of the public sector, and that private-sector pension schemes are poor and the public-sector schemes should be as poor. No attempt is made to argue that private companies should provide properly for their employees' retirement. We are to be set against each other, workers in private or public sector, taxpayers and public sectors workers, when it is quite apparent that most of us fall into more than one of these categories at once.

I am proud to be striking today. I am proud to be defending the right of myself and my colleagues to contribute a reasonable amount to dignity in old age, should we be lucky enough to get there. I was pleased to receive the instruction to strike from my rep., together with the helpful information that 'UCU believes the proposals are not only unfair, but totally unnecessary. The TPS was renegotiated in 2007 to make it affordable and sustainable over time. There is no crisis or deficit in the scheme. This is nothing more than an ideologically motivated attack by a government that wants us to pay for an economic crisis we did not create.'

The changes to pension contributions, which represents an increase of some 50% or about £150 per month, are actually a tax specifically on the public sector, the government's target of choice, to extract money to pay for the deficit caused by the banking crisis. Since our future pensions will be politically controlled there is no limit on the number of times the government can come back to us for more money, or how many times they can reduce our consitions, our pay, or our future pensions. No limit, that is, except our unified political resistance.

In The Great Transformation Karl Polanyi gives an interesting new perspective on the strike. If labour is to be distributed in a market, he argues, then the seller, i.e. the worker, has a perfect right not to sell until his price is reached. It is the absurdity of considering labour a commodity like any other that causes the strike to appear anomalous. Here is his lucid prose from p. 239:

'Actually, strikes in vital services and public utilities held the citizens to ransom while involving them in the libyrinthine problem of the true functions of a labor market. Labor is supposed to find its price on the market, and other price than that so established being uneconomical. As long as labor lives up to this responsibility, it will behave as an element in the supply of that which it is, the commodity "labor", and will refuse to sell below the price which the buyer can still afford to pay.

Consistently followed up, this means that the chief obligation of labor is to be almost continually on strike. . . The source of the incongruity of the theory and practice is, of course, that labor is not really a commodity, and that if labor was withheld merely in order to ascertain its exact price society would very soon dissolve for lack of sustenance. It is remarkable that this consideration is very rarely, if ever, mentioned in the discussion of the strike issue on the part of liberal economists.'
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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. Tweet