By Lucy Clement
The record slump in the stock market provides gloomy evidence of the chaotic nature of the market economy. Since its peak of 6,930 in December 1999, the FTSE index of the UK’s top 100 shares has lost almost half its value and last week fell below 3,500, its lowest level since 1995. But while it may offer a chance to say to the more capitalist-minded “we told you so”, for many workers the latest falls on the FTSE and Wall Street are far from being good news.
An increasing number of companies are responding to the falling markets by slashing pension provision for their workers. Instead of taking the financial risk of investing pension funds themselves and picking up the bill if they failed, firms are passing that burden on to workers. In the last three years, it is estimated 25% of firms have closed their final salary pension schemes — where pensions are guaranteed and linked to earnings — to new members. Workers are instead offered plans linked to the stock markets, with no guaranteed pension level. And employers are cutting their payments into these money-purchase plans by an average of one-third.
When the markets were booming in the 1990s, many company bosses happily decided to take pension fund “holidays” — relying on the rising value of stocks and shares to fund their employees’ pensions. According to the Inland Revenue, these “holidays” were worth £18 billion — redirected into bigger profits then, but leaving workers to suffer now. One City fund management firm estimates 75% of final salary pension schemes could be closed within five years.
The Government’s response to the pensions crisis is not to increase the state pension to a decent level, or to link it to earnings — but to push more people into taking out market-linked private pension plans, leaving them at the mercy of markets which can fluctuate by huge margins within just a few months. (The alternative, of course, is that we’ll all have to work longer.)
For the six million people in the UK with endowment mortgages — like money-purchase pensions linked to the stock exchange — the market falls mean trouble too. Sixty per cent of them — 3.6 million — have now been told their payments are in danger of being too low to pay off their mortgage. Many banks are now being fined for mis-selling these mortgages, but it is unclear whether the promised compensation will actually meet the losses.
A third potential blow comes from the insurance industry — big investors on the stock market — which will no doubt be putting our premiums up to make up for its losses.
The current falls on the stock market may reverse themselves — or an ongoing international crisis may consolidate them. No-one knows. What they clearly demonstrate, though, is the volatility of market capitalism — and that it cannot be relied upon to pay for decent pensions or homes.
The trade unions must take a lead in fighting to stop the scrapping of guaranteed pension levels — and in telling the Government that our right to decent pay and pensions must come before its friends in the City.
