The history of old age pensions

Submitted by Anon on 22 March, 2005 - 12:57

Old age pensions have been won by labour-movement campaigning, or granted by conservative politicians trying to pre-empt rising labour movements.

The idea of a universal old-age pension, payable to all elderly people as of right, was first raised in the French Revolution of 1789–99, although the policy was never carried through.

The first comprehensive old-age pension was legislated in Germany, in 1889, by a conservative leader, Otto von Bismarck, who wanted to stall the rise of the then-illegal German socialist movement.

Britain’s trade unions started campaigning for old-age pensions in the 1890s, and won their first victory with a very meagre means-tested pension introduced in 1908 by a Liberal government.

Pension provision was enlarged in Britain and many other countries after World War Two. Almost everywhere in the richer countries, systems developed combining three elements:

  • A basic state pension, often higher than Britain’s very low level, but usually not fully universal. Most countries had a system of special pension taxes or contributions, like Britain’s National Insurance contributions, and your pension would depend on your contributions record. This limitation hits women especially hard, since they are less likely to have a continuous record of being employed and paying contributions than men are.
  • Occupational pensions organised by the government or by large private companies.
  • Means-tested “poor relief”.

The state pension was usually run on a pay-as-you-go basis, with each year’s pensions being paid from current contributions. Occupational pensions were usually “funded”, meaning that contributions were paid into a fund then used to buy shares, bonds, and so on, and the pensions were paid from the income.

Private pension funds were much more significant in the USA and the UK from the early 1970s onwards, and are now huge financial forces.

A new sort of pension scheme has developed in the USA and Britain, especially, since the 1970s and ’80s — the “personal pension”, where a worker pays into a pension fund and draws a pension from it on retirement without the employer playing a role. The new “stakeholder pensions” in Britain are like “personal pensions”, though an employer has a small role in administering them.

The trend for people to live longer has put a strain on pension schemes, since at the same time a long-term reduction in birth rates, and a lengthening of the time people spend in school and college, will tend to reduce the size of the working population relative to the population as a whole. The best guess is that, by 2030, 30% of Britain’s population will be over 60 years old, while in 1990 it was only 20%.

But the bosses who are pressing for public and collective pension provision to be cut are the same people who have been pushing lots of workers over 50 into unwanted early retirement. And the drive to privatise pension provision is not a way to cut costs. Private pension schemes take out about a third of the proceeds in charges, fees, and other rake-offs for the finance industry, while public provision is much cheaper.

Privatising pensions increases inequality among pensioners.

In 1994 the World Bank published a report summarising the new capitalist consensus — governments should roll back public pension provision, and move towards compelling everyone to pay into a private pension scheme. More “choice” — and more fuel for high finance, and more rake-offs for the financiers.

Compulsory private pensions had been introduced in Chile under the military dictatorship. Margaret Thatcher’s government pushed private pensions heavily — the courts later found that 1.6 million people had been “mis-sold” private pensions which were worse value than what they already had — and considered making them compulsory.

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