Iam grateful to Henri Jacot for his critical reflections on my proposals for pension reform. Pension funds are a form of capitalist property, albeit a rather strange one. It might seem to some socialists that such funds should simply be abolished and that there is therefore something paltry about a mere programme for their reform. I am therefore pleased that Jacot notes the radical nature of the package I recommend. It aims to create a quite new pension fund regime—one entirely distinct from that associated with pension funds as we know them today, whether in the UK, the US, Chile or the Netherlands. In these countries, and a widening circle of imitators, large tax breaks are given to pension funds and professional fund managers, subject to the narrowest commercial objectives, supplant both policy-holders and any wider notion of the public interest.
My proposals start from the recognition that pension funds represent a problematic and anomalous kind of property, which has great weight within the global capitalist order. Though he does not flatly deny their importance, Jacot may still underestimate it. He points out, for example, that in the United States those covered by personal or occupational schemes are a declining proportion of the workforce. This is true, but not because the absolute numbers of those covered by such schemes are in decline. The recent expansion of employment in the US has mainly swelled the ranks of temporary, part-time or short-term contract employees who do not qualify for occupational pensions and whose modest earnings do not furnish them with the resources to take out personal pension plans. The number of employees participating in occupational pension plans based on ‘defined benefits’ has dipped from slightly over to slightly under 40 million, while those in so-called ‘defined contribution’ or ‘money purchase’ schemes have risen from 40 to 45 million over the last decade.footnote1 The total value of these funds has grown dramatically during the bull market of the nineties.
The ‘defined benefit’ type of pension, with its guaranteed link to salary levels, has fallen out of favour with employers, who have sought to replace such schemes with so-called ‘defined contribution’ or ‘money purchase’ pensions, which pay the contributor only what their ‘pot’ will buy as an annuity at retirement. The trend away from ‘defined benefits’ should probably be seen as a gain to employers, though it may also reflect the fact that the ‘defined contribution’ system is more adaptable to job mobility. But it remains the case that funded provision as a whole is hugely important. White collar and managerial strata do well out of such schemes, of course, but so do most public employees and union members. The majority of such workers are covered by occupational schemes and their trade unions would strongly resist any plan to wind them up. On the other hand proposals that gave policy-holders and their representatives a real say in the running of the schemes, and which rewarded funds which comply with wider social objectives, could be attractive to this constituency as well as to social movements.
In Britain, it is true, the widespread sale of individualized personal pension plans led one and a half million employees to become victims of a gigantic mis-selling scandal. This experience itself demonstrated the need for far-reaching reform. But note that the victims were those who had bought an individual plan, not those joining occupational schemes; indeed many had been tempted to desert the latter for the former. The bad personal schemes are bad because of the heavy administrative charges and marketing costs associated with them, and not because they invest in equities. The generality of occupational schemes also play the stock market.
Henri Jacot’s comments are not entirely free from a paradox—or even self-contradiction—often displayed by left critics of proposals to extend funded pension provision. On the one hand, it is objected that funded provision is the preserve of the more privileged; on the other, it is argued that it would be wrong to bring the excluded into such arrangements, on the grounds that they are supposedly expensive and risky. While many schemes could indeed be improved, the holders of occupational pension funds of all types find them generally a good investment. Middle-class and professional people generally take good care to enrol themselves in such occupational pension schemes. This would be perverse behaviour if the idea of pensions invested in equities were really as dubious as their critics claim. Social movements, more reasonably, tend to object to specific investments but not to the very notion of investment as such.