Pensions: the new source of industrial conflict

Citation

Gennard, J. (2006), "Pensions: the new source of industrial conflict", Employee Relations, Vol. 28 No. 4. https://doi.org/10.1108/er.2006.01928daa.001

Pensions: the new source of industrial conflict

In recent months the UK has seen strike action and/or the threat of strike action by trade unions over attempts by the employers’ to change occupational pension arrangements. In March 2006, local authority workers undertook a one-day strike against proposals from their employers’ to increase the retirement age. In late 2005 in the face of the threat of strike action by the civil service unions the government made an agreement with them whereby it preserved the pension promise made to, and build up, by existing public servants but that each public sector scheme be re-negotiated for future recruits. British Airways has a pension fund deficit of over £2 billion and has announced it wishes to remove the deficit by making a one-off payment of £500 million, a rise in the retirement age from 55 to 60 for pilots (68 for other employees), a cut in company contributions, and a cap on retirement allowances. The BA trade unions are threatening industrial action if the company implements these proposals. One trade union official has advised members of the public to take their forthcoming summer holidays by train.

Why have pensions become such an important industrial issue? Simply, it is because we are all living longer. Companies did not realise just how far reaching their occupational pension schemes would be when they first made them in the 1950s. At that time retired employees were expected to live for about a further ten years i.e. to 75. A pension was regarded as providing for a brief period of leisure following a long working life. However, today life expectancy is rising quickly. It is estimated to be increasing by two years every decade. Life expectancy is now well into the 80s. By 2050 the percentage of the population over 65 years of age will have doubled. Successive British governments have boasted about the extent of private pension provision in the UK compared with mainland Europe where state schemes dominate. This has allowed the UK government to spend a much lower proportion of gross domestic product on state pensions.

There are, however, other reasons why occupational pension funds have now serious deficits. First, Gordon Browns tax on pension funds reduced their size by some £5 million and given the requirement of Pension Funds to have minimum levels of required funds employers were faced, at that time of difficult economic conditions, with increased employer pension contributions, which they have found difficult to do. A second factor, was the collapse of the Stock Market after the events of 9/11. This further reduced the income of pension funds contributing to increasing deficits. The deficits are now very significant in that companies must now show their pension deficits as liabilities in their annual accounts. This prevents companies taking over other companies, avoiding the liability to the occupational pension fund.

There is thus a looming crisis that could leave many employees’ with lower pension payment than they expected. The government is trying to find a consensus as to how the problem might be resolved. The Turner proposals for an increase in the retirement age, compulsory contributions by employers into a Pension Fund and an earnings linked state pension are favoured by the trade union, but opposed by the employers. The government is also, said to be divided. The Prime Minister favours the Turner proposals as the basis for negotiating a settlement to the pensions “crisis” but the Chancellor of the Exchequer is concerned about the costs to the taxpayer of wage/earning index state pensions.

As employees live longer and work less, a gap is opening up between the amount employers invest for pensions and increasing costs of maintaining available occupational pension schemes. Companies must by law make good much of the funding shortfall in their retirement schemes. The collective pension deficit for the UK’s largest privately owned corporation, was estimated in March 2006 at £44 billion and this is regarded as a conservative estimate. Indeed, some companies that were trading profitably, have gone to the wall, because of their inability to meet pension-funding requirements. Employers have little choice to re-negotiate their pension arrangements, possibly in the form of strike action, with their employees’. In the short term this will undoubtedly lead to increased conflict between employers’ and unions.

With respect to occupational pension, in the public sector, there is the fear that private sector employees’ will resent the costs they have to bear to support the continuing superior pension provision for public sector workers’, relative to private sector employees’. The private sector is the wealth-creating sector of the UK economy. It is that wealth is taxed to support the public sector. Without a wealth-creating sector that can be taxed there cannot be a public sector providing good quality service. The private sector is facing increasing competition, based on issues such as price and quality of the product. To maintain competitive advantage, the private sector must increase its productivity. In short, private sector employees’ will have to continue to worker harder. Fewer will have to produce more and more. Private sector employees’ will want to retain some of their productivity gains to improve their own terms and conditions of employment. They will become resentful, if their productivity gains are instead used to raise taxation, to fund, among other things, the superior occupational pension arrangements in the public sector.

This in time is likely to open up a political divide between the workers in these two sectors. Related to this possible conflict is that if the pensions “crisis” is not addressed, tensions may increase, between retired and older workers, on the one hand and young workers, on the other hand. The latter currently enjoy more immediate spending power than their parents, and certainly their grandparents, ever did. In addition they save less. Their old age situation, however, looks bleaker than previous generations, unless the financing of occupational schemes is reformed. It seems inevitable, after a period of conflict between employers’ and employees’ over the issue of occupational pension schemes, that in the longer term the traditional pragmatic approach of UK trade unions’, and employees’ to their employers’ will return and a new settlement will be negotiated around a higher retirement age, and enhanced contributions to occupational schemes by both employee and employers. We may well see trade unions negotiating lower pay and other employment condition improvements in return for improvements in pension arrangements, resulting in higher contributions by the employer and lower contributions from employees.

John Gennard