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‘I’ on Vote by Chileans to Get Rid of Pinochet Constitutions

Here’s a piece of good news from Tuesday’s I for 27th October 2020. According to this piece by Aislinn Laing, entitled ‘Citizens vote to scrap Pinochet-era constitution’, the Chilean people overwhelmingly voted to get rid of the constitution that’s been governing the country since General Pinochet’s Fascist dictatorship. The article runs

Citizens poured into the country’s main squares on Sunday night after voters gave a ringing endorsement to a plan to tear up the country’s Pinochet-era constitution in favour of a new charter drafted by citizens.

In Santiago’s Plaza Italia, the focus of the massive and often violent social protests last year which sparked the demand for a new “magna carta”, fireworks rose above a crowd of tens of thousands of jubilant people singing in unison as the word “rebirth” was beamed onto a tower above.

With more than three-quarters of the votes counted, 78.12 per cent of the voters had opted for the new charter. Many have expressed hopes that a new text will temper an unabashedly capitalist ethos with guarantees of more equal rights to healthcare, pensions and education. As votes were counted on live television around the country, spontaneous parties broke out in the streets.

It’s clearly not only Spain that is voting to get rid of the legacy of its Fascist dictators. Pinochet seized power thanks to a coup organised and assisted by the CIA, because America could not tolerate a democratically elected Marxist regime on its doorstep. The former president, Salvador Allende, vanished and left-wingers were rounded up and sent to prison camps in which they were raped, tortured and massacred. And just to make it clear that Pinochet himself thought he was Fascist, the regime’s military uniforms were deliberately modelled on those of the Nazis.

Pinochet was a Monetarist, and Milton Friedman and others from the Chicago school went on trips to Chile to see how he was implementing their wretched economic theories. Friedman and the rest looked forward to the seizure of power by a Fascist dictator, because they realised that people would not vote for a leader determined to destroy the welfare state.

He was also a friend of Maggie Thatcher. She liked him because of the assistance he gave Britain during the Falkland’s War. And doubtless the other reasons behind their friendship was that she had also started her career as a Monetarist and similarly wanted to destroy socialism. When Pinochet came to Britain, I think she put him up at her house, and complained bitterly when Blair attempted to have him arrested for the murder of a Spanish lad.

Pinochet may have made Chile safe for capitalism, but his legacy has been terrible. He wrecked his country’s education when he adopted the Monetarist scheme to give its citizens vouchers, which they could spend on state or private schooling. Buddyhell, Guy Debord’s Cat, put up an article about how this destroyed the Chilean education system and resulted in gaping educational inequalities.

I think it’s brilliant that the Chilean’s have decided to get rid of the dictator’s constitution, and hope that the new constitution they decide on will give its people greater access to welfare benefits.

And I hope it won’t be too long before the legacy of Pinochet’s friend Thatcher is thrown out over here.

See: https://buddyhell.wordpress.com/2012/09/11/remembering-the-other-911/

https://buddyhell.wordpress.com/2011/08/26/chile-neoliberalism-and-discontent/

Statistics for state pension age campaigners

Published by Anonymous (not verified) on Tue, 22/09/2020 - 7:26pm in

Tags 

pensions

Another day, another takedown of claims made by women's state pension age campaigners. This time, it's figures for benefit claims by women in their early 60s. David Hencke claims that sharp rises in the number of women in this age group claiming unfit-for-work benefits (ESA and legacy incapacity benefits) proves that losing their state pension entitlement is wrecking the health of women in this age group. And he argues that this calls into question the DWP's recent victory in the Court of Appeal:

The disclosure of these figures -obviously not available at the time of the hearing – does undermine the forceful case made by Sir James Eadie, QC, who represented the Department of Work and Pensions, that any poverty or ill health suffered by these women could not be linked to the rise in the pension age to 66.

Unfortunately, it doesn't.  

The figures released by the Commons Library on 18th September 2020 do indeed look damning. Here's an excerpt from their table, in which I have highlighted the headline figures:

 

As David correctly observes, when the state pension age was 60, women didn't claim unemployment benefit. So the 382% rise in JSA and out-of-work UC is the inevitable consequence of women aged between 60 and 65 losing their entitlement to state pension. If this table started from 2010 instead of 2013, the percentage rise for JSA and out-of-work Universal Credit would be even larger. 

But when the state pension age for women was 60, women aged over 60 didn't claim ESA either, though they did claim other disability benefits. So the 185% rise in ESA is also the inevitable consequence of the rise in women's state pension age.

David claims that the 185% rise in ESA claims between 2013 and 2019 reflects actual worsening of women's health directly attributable to the loss of their state pensions. But there is no evidence for this in the Commons Library's figures. The rise is simply a matter of mathematics. It tells us absolutely nothing about the state of women's health.   

Between April 2010 and November 2018, state pension age rose gradually from 60 to 65 for women born between 6th April 1950 and 5th November 1953. In 2013, the start point for this table, women's state pension age was between 61 and 62. So most women aged between 60 and 65 at that time were receiving a state pension, and therefore not eligible to claim JSA, ESA or out-of-work UC. But by 2019, women's state pension age had risen to 65 and was starting to rise towards 66. Every woman aged between 60 and 65 was eligible to claim those benefits. There was therefore a much larger number of women aged over 60 who could potentially claim ESA.

David assumes that the proportion of eligible women claiming ESA increased between 2013 and 2019. But the Commons Library figures don't actually say that. So, let's work some figures to see if his claim is reasonable.

The Commons Library says that the number of women claiming ESA and its precedessor incapacity benefits rose from 72,102 in 2013 to 204,202 in 2019.  The DWP provides figures for the number of women aged 60-65 in each year.* Applying the state pension age in force for each year. gives the following estimates of women eligible for working-age benefits in the two years in question:


Applying these estimates to the Commons Library figures gives us the following percentage increases in claims by women aged 60-65 for the two categories of working-age benefits:

Two things spring out of this. Firstly, that the proportion of eligible women claiming unemployment benefit is very low, though it has more than doubled in the time. And secondly, that though there is a 5% rise in the proportion of eligible women claiming incapacity benefits, it is nowhere near the disaster that David Hencke claims. It is most likely accounted for by the fact that the average age of women aged 60-65 claiming ESA has risen, since the likelihood that someone has health problems severe enough to reduce or eliminate the capacity to work increases with age.   

This table compares the rates of working-age benefit claims for men and women aged 60-65 between 2013 and 2019:

It's not the easiest table to read, so I have created three charts from it. First, here is the split of total working-age benefits between men and women. It's a percentage chart, so tells nothing about the number of claimants. What it shows us is that as women's state pension age has risen, the proportion of total working-age benefits claimed by women has risen and the proportion claimed by men has fallen. By 2019 the proportions had converged to approximately 50% each, exactly as we would expect from equalisation of state pension ages. 

Next, ESA/incapacity benefit claims during the same period:


As I explained above, the sharp rise in women claiming ESA simply arises from the fact women aged 60-65 progressively became eligible to claim ESA as their state pension entitlement ended, while those already claiming who would have "rolled off" the ESA statistics when they reached 60 no longer did so.

However, the fact that women's ESA claims now exceed those of men could suggest that the rise in state pension age has slightly worsened the health of women in this age group. But this is a dangerous assumption. The remarkable thing about this chart is not that women's claims have increased, it is that men's have not.

Men used to have the right to claim Pension Credit at women's state pension age. Unemployed men could, therefore, opt to claim Pension Credit instead of registering as unemployed. Similarly, if men were too ill or disabled to work, they could claim Pension Credit instead of incapacity benefits. And the NI autocredits scheme ensured that if they did claim Pension Credit (which does not include NI credits) they would still receive a full state pension when they reached 65. So, men who were already signed off work due to incapacity, and met means-testing criteria for Pension Credit, would disappear from the ESA statistics at women's state pension age just as women of their age did. 

As women's state pension age rose, unemployed men progressively lost their right to claim Pension Credit and NI autocredits and were therefore forced to register as ESA/JSA/UC claimants. So we would expect male claims for ESA/incapacity benefits to have risen as women's state pension age rose. And they did, a bit, though they have plateaued since mid-2016. But they haven't risen anything like as much as ESA/incapacity benefit claims from women. Why?
This chart is even more extraordinary:

It would be easy to explain this as men transferring from Pension Credit to unemployment benefits as women's state pension age rose. But this doesn't explain why men's unemployment claims remain considerably higher than women's. After all, with full equalisation, one would expect unemployment claims from both sexes to be equal. 

One possibility is that unemployed women are less likely to register as unemployed because they are more likely to live with a partner who can support them. But this wouldn't explain why women's ESA claims now exceed those of men while men's JSA/UC claims continue to exceed those of women. After all, a woman who is unable to work due to illness and has a partner who can supporter might not claim ESA, either.

But there is another explanation which would cover both thhe disproportionately high unemployment claims from men and the disproportionately high ESA claims from women. That is social stigmatizing of men who are unable to work because of illness or disability.

There is a prevalent social belief among the 60-65 age group that men are "tougher" than women and therefore should be expected to work when a woman with an equivalent health condition would not. To what extent does this influence the benefit claims that people of this age group make? Is a woman with a health problem more likely than a man with a similar problem to claim ESA? 

It's also possible that the discrepancy in the types of benefit claims made by men and women arises from systemic discrimination against men in the WCA process. Put bluntly, men are more likely than women to be judged fit for work. This might be because men tend to hide their fragilities, or it might be because the prevailing social belief in the toughness of men influences those conducting WCA assessments. It also might be that women are more likely to seek advice about the types of benefits they could claim, and more likely than men to be advised to claim sickness/incapacity benefits. 

Whatever the reason, it appears that men aged 60-65 disproportionately claim unemployment benefits, while women disproportionately claim incapacity benefits. Whether this disproportion is reflected in actual discrepancy in fitness to work as objectively judged by medical professionals is at present unclear. 

What is clear, though, is that David Hencke's claim that the rise in state pension age has caused a significant worsening of the health of women in the 60-65 age group is not supported by the Commons Library's figures. Although women seem to be more likely than men to be deemed unable to work, the difference could be explained by the social expectation that men will work even when ill - an expectation which probably contributes to their earlier deaths. 

* The original version of this post estimated the number of women aged 60-65 in each year using a notional 5% of the UK population. Thanks to Michael O'Connnor for sending me the actual numbers as produced by the DWP. 

Related reading:

Calculus for journalists
Probability for geeks
Arithmetic for Austrians
The true story of NI autocredits
The NI Fund's reserves don't pay down the National Debt
Dangerous assumptions and dodgy maths 
Increases in the state pension age for women born in the 1950s - Commons Library

Second table courtesy of Suzy Allbright, based on the DWP's Gender and Age spreadsheet. 

I have not provided a link to David Hencke's piece. 

Quote from Liberal Leader Arthur Balfour Describing Boris

Published by Anonymous (not verified) on Tue, 22/09/2020 - 5:47pm in

Yes, I know this is another ad hominem attack on the character of our great and beloved P.M (Performing Monkey). But like the Russian prison camp slang, it appears to suit him. Arthur Balfour was one of leaders of the British Liberal party just before and during the First World War. He’s credited with passing the old age pensions act which laid the foundations of the British welfare state. More dubiously, it was his infamous declaration in 1917 that committed Britain to a Jewish state in Palestine. This led to the foundation of Israel and its 70 year long campaign of oppression and ethnic cleansing against the Palestinians.

I found this quote in Peter Vansittart’s book Voices: 1870 – 1914). It’s how Balfour described an unknown enemy. ‘If he had a few more brains he’d be a halfwit’.

Quite – and so true of our current PM.

Proposals for a Scottish National Pension & Investment Fund (NPIF) – A guest post by Jim Osborne

Published by Anonymous (not verified) on Thu, 10/09/2020 - 12:11am in

As the coronavirus pandemic continues to crush economies around the world we are currently witnessing a boom in the financial sector and continuing inflation of asset values. This is a clear indication that at some point in the past a tipping point was reached and the real economy and the financial sector separated into two... Read more

The Supreme Court Just Gave Corporations a License to Steal

Published by Anonymous (not verified) on Thu, 25/06/2020 - 1:56am in

In the 1987 classic film Wall Street, pension funds make a brief but important appearance, as Gordon Gekko hatches a plan to steal 6,000 airline workers’ retirement savings. An angry Bud Fox asks Gekko: “How much is enough?” — a question warning … Continue reading

The post The Supreme Court Just Gave Corporations a License to Steal appeared first on BillMoyers.com.

The true story of NI autocredits

Published by Anonymous (not verified) on Fri, 19/06/2020 - 4:24am in

There's yet another bizarre claim doing the rounds in Waspiland. Or, more correctly, among the hardline Back to 60 fringe of the broader women's state pension movement. I try to ignore most of the ridiculous claims made by Back to 60 campaigners, because they aren't going to listen to me and I will simply end up with a sore head and a very frayed temper. But this one is more complex - and confusing - than most, and it doesn't only affect women. So it is worth explaining. 
As always, the story starts with the unequal state pension ages of men and women. When the present state pension system was introduced in 1946, women's state pension age was set at 60, and men's was 65. To qualify for a full state pension, women had to make 39 years of NI contributions: because their state pension age was 5 years later, men had to make 44 years of contributions. 
During the inflationary 1970s, unemployment gradually rose to the highest levels since the Great Depression. Youth unemployment was particularly high, and for the first time, graduates were affected. Concerned by rising youth unemployment, in 1977 the Labour government introduced a job release scheme (JRS) for older employees, both men and women. Originally, it was limited to employees within one year of state pension age - ie 59 for women and 64 for men - and was conditional on the firm employing someone from the unemployment register to replace them. But by the mid-1980s it had been extended to all men over 60, and the conditionality had been lifted. 
The JRS paid a flat-rate allowance to people who took early retirement under the scheme. The allowance was significantly lower than the median income, but 70% higher than unemployment benefit and 40% higher than the basic state pension. It was attractive to those on low incomes, those who could supplement it with an occupational pension, and those who would otherwise lose their jobs. But there was one huge problem. It did not include NI credits. Unless they registered as unemployed, people who retired early could find themselves with a lower state pension when they reached state pension age. 
In March 1983, the Chancellor, Geoffrey Howe, announced that the JRS would be extended to men over 62 and women over 59 who wished to reduce their hours: 

I can now announce a new scheme for part-time job release. It will apply to the same categories of older people who are willing to give up at least half their standard working week, so that someone else who is without a job can be taken on for the remaining half. The allowances will be paid at half the full-time rate. The scheme will take effect from 1 October and should provide part-time job opportunities for up to 40,000 more people who are at present unemployed.

Simultaneously, Howe announced that men over 60 who were not working, including those who had taken early retirement under the JRS, would no longer have to register as unemployed in order to receive NI credits: 

Some 90,000 men between the ages of 60 and 65 now have to register at an unemployment benefit office if they wish to secure contribution credits to protect their pension rights when they reach 65. From April, they will no longer have to do this. Even if those concerned subsequently take up part-time or low-paid work on earnings which fall below the lower earnings limit for contributions, their pension entitlement will be fully safeguarded.

So the NI contributions of men aged over 60 would in effect be guaranteed by the state. 
Why did these "autocredits" only apply to men? Simple. Women could take their state pensions from 60, whereas men had to wait until 65. And men also needed 44 years of NI contributions to qualify for a full state pension, whereas women only needed 39. So only men were suffering from loss of pension rights due to retiring in their early 60s. 
It could be argued that women suffered a similar loss of state pension rights if they retired between 55 and 59. But the JRS scheme did not encourage them to do so. The autocredits were introduced because government policy at that time specifically encouraged men - but not women - to take early retirement some years before their state pension age.  It could also be argued that it was harder for women to make enough NI contributions, because they tended to have long breaks from work, work part-time and be paid less than men. However, none of this was considered at the time. And as we shall see, it became irrelevant as far as women born in the 1950s are concerned. 
In 1995, legislation was passed to raise women's state pension age gradually to that of men, starting in 2010 and completing in 2020. As a consequence of this legislation, women would have to make the same NI contributions as men. Clearly, therefore, if men in their early 60s received automated NI credits, so too should women affected by the state pension age rises. In a letter sent to Myfanwy Opeldus in 2002, the DWP indicated an intention to extend autocredits to women: 

At the moment, we award National Insurance credits to men between the ages of 60 and 65 who don't work and don't pay National Insurance contributions. We do this to protect their basic State Pension entitlement. We will make similar arrangements for women from 2010, when their State Pension age begins to rise.

In 2007, the Labour Government cut the number of years of NI contributions required for a full state pension to 30 for both men and women. The change would take effect from 2010. As a result, it became much less likely that men retiring in their early 60s from 2010 onwards would not have a full NI contribution record. So, in 2009, the Labour government used a statutory instrument to phase out autocredits from 2010 onwards. 
An explanatory memorandum issued with the statutory instrument sets this decision in the context of the 1995 legislation equalising state pension ages. Autocredits had become a concession to men to soften the impact of continuing discrimination against them during the 25 years it would take to complete equalisation. They enabled men to stop work in their early 60s without suffering a state pension penalty:

7.33. Since 1983, National Insurance credits have been automatically available to men to make up any deficiencies in their record in the five tax years before the year in which they reach state pension age. “Autocredits” were introduced alongside changes that meant that men were no longer required to be available for work as a condition for receiving benefit once they reached age 60 (ie. the age at which women become eligible for the state pension). Autocredits protect a man’s basic state pension position during these five years if he is not working and paying National Insurance or entitled to credits for other reasons such as registered unemployed, sick, or a carer.

But autocredits did not give men an early state pension, as some have claimed. If men stopped work in their early 60s, they either had to live on their occupational pensions or, if they were poor, claim the means-tested Pension Credit. Women of the same age were, of course, receiving state pensions.
The memorandum goes on to acknowledge that the original intention had been to extend autocredits to women as their state pension age rose. It notes that under the original legislation, the number of years of NI contributions that women would have to make to qualify for a full state pension would have increased in line with their state pension age:

7.34. When the Government published its plans for state pension age equalisation in 1993, the intention then was that as women’s pension age increased gradually to 65, autocredits would become available to them on the same basis as for men. This was in part to compensate for the increase in the number of years women would otherwise have to pay National Insurance contributions for in order to qualify for a full basic pension. 

And it then explains the reasons for the decision to phase out autocredits: 

7.35. This approach has since been reviewed, for two reasons. Firstly, the qualifying age for Pension Credit (the income-related benefit currently payable to men and women at 60 without jobseeking conditions attached) is set to increase to 65 by 2020 in line with female state pension age. Men claiming Jobseeker’s Allowance or Employment and Support Allowance will no longer have the option of switching to Pension Credit in the run-up to state pension age and will continue to receive a credit through receipt of those benefits instead. Without the proposed change, autocredits would increasingly apply mainly to people who could afford not to work or claim benefit. Secondly, the reduction in the number of qualifying years needed for a full basic pension to 30 and the improvements in the crediting arrangements for carers under the measures introduced by the Pensions Act 2007 will mean that the need for autocredits to protect state pension entitlement will be significantly reduced. (Those who would have benefited from autocredits had they been available will still have the option of paying voluntary National Insurance contributions to make up “missing years”.) 

In short, as sex discrimination in state pension ages was progressively eliminated from 2010 onwards, the concessions made to men to soften the impact of that discrimination would be gradually withdrawn, rather than extended to women as well. Once state pension ages were equalised, both men and women aged 60-64 who were not working would have to rely on the working-age benefits system rather than any form of state pension provision. Those who qualified for working-age benefits would receive the NI credits associated with those benefits. 
Autocredits were to be phased out gradually between 2010 and 2020. As women's state pension age rose, the age at which men became eligible for autocredits would also rise, thus ensuring that men only received autocredits for the period during which women of their age were receiving state pensions but they were not:

7.36. This instrument amends the Credits Regulations to provide that autocredits will be available to men only for the tax years in which they have reached what would be pension age for a woman of the same age, up to and including the last tax year before the one in which they reach age 65. Men born on 6 October 1954 or later, who will reach both female pension age and their own state pension age in the same tax year, will not qualify for the credits. 

The timetable was accelerated in 2011 in line with the timetable for women's state pension age rises. Autocredits were eliminated completely in November 2018, when women's state pension age reached 65. 
However, the taper was considerably simpler than that for womens' state pension age rises:

 (for comparison, you can find the timetable for women's state pension age rises under the 1995 Pensions Act here and the accelerated timetable under the 2011 Pensions Act here)
Because of this, some men will have received autocredits for short periods before women of their age reached state pension age. But we don't even know how many men received autocredits between 2010 and 2018, let alone how many of those received autocredits while women of their age were still working. All we have is a Freedom of Information response that tells us that between 1983 and 2018, as some 4.6m men may have qualified for autocredits. However, many of those men didn't need autocredits to qualify for a full state pension, either because they had already made enough NI contributions or because they were still working and paying NI. And some of the men died before reaching state pension age. So the truth is we have no idea how many men benefited from NI autocredits. It may not be very many. 
But of one thing we can be certain. Whether or not they benefited from NI autocredits, all of those 4.6m men were victims of statutory sex discrimination. They lived at a time when women of their age had earlier state pension ages than they did. Now, that discrimination has been eliminated, and with it the concessions such as autocredits that aimed to made it bearable. They are no longer needed by men, and they were never needed by women. What is needed now, as I have explained before, is reform of working-age benefits to make them less harsh and more suitable for both men and women as they approach retirement. 
 Related reading:
Releasing Jobs for the Young? Early retirement and youth unemployment in the United Kingdom - IFSSocial Security (Age of Retirement) Bill - HansardRegulation 32 of the State Pension Regulations 2015 (SI No 173) - National Insurance Manual- DWP

The NI Fund's reserves don't pay down the National Debt

Published by Anonymous (not verified) on Tue, 14/01/2020 - 4:56am in


The NI Fund discussed in this post covers England, Wales and Scotland only. Northern Ireland has a separate NI Fund, which is excluded from the figures given in this post. However, it works in exactly the same way as the Fund discussed here. 

Sometimes the government is its own worst enemy. HM Treasury's hamfisted response to this Freedom of Information request from Trudy Baddams of the pension rights campaign group "We Paid In, You Paid Out", has caused a very silly storm.

Ms Baddams asked this question:

Can you confirm that the National Insurance Fund (NIF) is presently in surplus and by how much? Can you also please confirm how much has been paid from the fund into the National Insurance Investment Fund in the last 10 years?

In response, HM Treasury pointed her to the NIF accounts, which are produced yearly. But then it added this paragraph (my emphasis):

The latest NIF Accounts show that the balance of the NIF increased by £2,286,469,000 in 2017-18. In addition to the previous balance, this resulted in a closing balance of £24,221,220,000, which was paid into the NIF Investment Account and, in practice, used to reduce the national debt.

This final statement (highlighted) was seized upon by opponents of women's state pension age rises as evidence that women born in the 1950s were being deprived of their pensions because of government mismanagement or even downright fraud. Since then, numerous articles, blogposts, tweets and Facebook posts have insisted, sometimes hysterically, that the NIF has been "plundered" by successive governments to "pay off the national debt", and that women were "robbed" of their pensions to plug the gap.

The independent fact checking organisation Full Fact attempted to debunk the claim that the NIF was being used to pay down the National Debt. But its conclusion unfortunately reiterated HM Treasury's confusing statement:

Claim: National Insurance Contributions are being used to reduce the national debt. 

Conclusion: Some are. This doesn’t mean anyone isn’t getting paid what they’re currently due in pensions or benefits—the UK government invests the NICs that don’t go towards paying pensions and benefits on reducing the national debt.

Oh dear.

Full Fact then muddied the waters still more by discussing the slightly incestuous relationship between the NIF and general taxation (of which more shortly) and the NIF's looming insolvency. This was to my mind unnecessary and only increased the confusion. Poor effort, Full Fact. Not up to your usual standard.

Before I dive into the misleading FOI response myself, let me first debunk two contradictory myths, both of which are widely believed (often, bizarrely, by the same people):

  • The NIF is a pension fund whose assets have been raided by the Government
  • NI contributions go into a general pot and are used for whatever purpose the Government wants

Both of these are untrue.

Firstly, the NIF is not, and never has been, a pension fund. It does not have "assets under management" belonging to contributors and invested for a future return. It is a clearing house which receives NI contributions (net of a 20% contribution to the NHS) and immediately disburses them to state pensioners and other beneficiaries. Thus the NI contributions of working people pay the pensions and benefits of people who are unable to work due to old age, sickness, unemployment or maternity: in their turn, when those who have previously paid NI become unable to work, their pensions and benefits are paid from the NI contributions of other people. NI contributions are not in any sense "savings". They are more correctly regarded as tax.

However, although they are tax, NI contributions do not go into the general "pot" of government funds. The NIF is ring-fenced for the payment of certain welfare benefits including the state pension. The full list of benefits paid from the NIF is here. Nothing else can legally be paid from it.

Despite repeated claims from campaigners that the NIF has been used to, inter alia, bail out banks, bribe Tory fat cats, finance wars, fund space programs in developing countries, provide housing for immigrants, give generous benefits to idle young people and pay off the national debt, there is zero evidence that the NIF has ever paid for anything other than the things it is legally required to fund. The accounts show that the single biggest item of expenditure from the NI Fund - by far - is the state pension, which swallows up almost all NI contributions, leaving virtually nothing for other benefits. If it were not for the rises in state pension age and the ending of SERPS/S2P in 2016, the NIF would now be insolvent.

That said, the amount of state pension and benefits paid out does not depend on NI receipts, but on Government policy as agreed by Parliament. The Government guarantees to maintain pensions and benefit payments at the agreed levels even if NI receipts fall. To ensure that as far as possible the NI Fund can meet its obligations without Government help, the NIF is legally obliged to keep reserves amounting to a minimum of 1/6 of outgoings. The "surplus" to which Trudy Baddams alludes in her FOI request is made up of these "statutory reserves" plus accumulated yearly excesses of receipts over income (if any).

Obviously, if outgoings exceed income - as they typically do in recessions - reserves fall. If the NIF's reserves fall below the statutory minimum, the Government tops them up from general taxation. Between 2014 and 2016, it provided a total of £14.2bn to the NIF to rebuild its reserves, which had been depleted by the deep recession of 2008-9, the slow recovery and a sharply rising number of pensioners due to longevity increases and baby boomer retirements. So, far from "raiding" the NIF, the Government actually bailed it out.

Since then, the NIF's finances have improved, though without the Government's bailout its reserves would still be below the statutory minimum. In the tax year ending 31st March 2019, the NIF's income exceeded its expenditure by £5.7bn, raising its total reserves from £24.2bn at the time of the FOI response to £29.3bn. And this brings me to that sentence in the FOI response.

The sentence is correct to say that the way these reserves are managed has the effect of reducing the national debt. But this does not mean that the reserves are being diverted to "pay down" the existing national debt. Rather, it means that their existence enables the government to borrow £29.3bn less than it otherwise would need.

This has not always been the case. Prior to 2007, the NIF's reserves were invested in existing gilt-edged securities (government debt), which is the safest and most liquid sterling investment available in the marketplace. This was rather like the Bank of England's QE: the NIF owned government debt, but the debt still existed. This meant that although the reserves were effectively borrowed by the government to fund other spending, the total stock of government debt did not reduce.

However, in 2007 the Government moved the NIF's reserves into an Investment Account at the Debt Management Office (DMO). The DMO is the Government's internal bank, responsible for issuing government debt, accepting tax receipts and other income, and managing the government's financial balances. The NIF's Investment Account is one of several accounts managed by the Commissioners for the Reduction of the National Debt (CNRD), which is part of the DMO.

The NIF's Investment Account is similar to an "instant access" bank savings account. The DMO pays interest on the account, which forms part of the NIF's income: in 2018-19, interest paid by the DMO on the investment account was £178.4m. The funds are "on demand" and can be withdrawn by the NIF at any time.

Like any other bank, the DMO uses deposits to fund its lending and spending. Doing so reduces its need to issue public debt. The NIF's reserves thus reduce the public sector borrowing requirement (PSBR). In this sense, they can be viewed as "reducing the national debt". But this does not mean the funds are being "diverted" to other purposes. They are simply being lent out for a return. As the House of Commons briefing paper on National Insurance contributions explains:

It is worth emphasizing that these funds are being held in this account on loan… there is no question of the Government being in a position to use this facility to extract money from the Fund as an extra source of revenue.

The NIF can draw on its reserves to meet its obligations, just as you or I can draw on our "rainy day" savings if our boiler breaks down or our income isn't quite enough to cover Christmas. When the NIF does this, the DMO covers the gap by issuing more public debt. Thus, when the NIF draws on its reserves, or its reserves fall below the statutory minimum, public debt rises. And this brings me to my conclusion.

There have been various proposals to pay 1950s-born women some form of compensation for state pension age rises. Many of the proposals involve paying out some or all of the NIF's reserves. But those reserves are legally required as a buffer against short-term variations in income and outgoings. If they were paid out to 1950s-born women, they would have to be topped up from general taxation. Therefore, if the the NIF's reserves were used to pay compensation to 1950s women, public debt would rise.

Whether 1950s-born women should be compensated for their state pension age rises is a political question that I do not propose to address here, though my views on the subject are well known. But there is a desperate need for honesty about the cost. There is no solution to the WASPI problem that doesn't involve much higher public debt. The campaigners have to make the case for this being a price worth paying. I'm afraid the election result shows that so far, they have failed to make that case.

Related reading:

The real victims of the "Rape of the National Insurance Fund"
The Fund that isn't a fund
Dangerous assumptions and dodgy maths
The past, present and (uncertain) future of a Government pension scheme - Forbes
The Myths and Legends of Hypothecated National Insurance - GIMMS

Deficit, what deficit? The politics of financial fact

Published by Anonymous (not verified) on Fri, 09/03/2018 - 2:32am in

Our pensions are under threat. You will be familiar with the headline numbers – pensions slashed by over half, to a level where the very survival of the university sector seems in jeopardy. I have done the numbers, like everyone else, and they make grim reading. But how did this whole mess come about? At root, it’s a struggle over risk and who should carry it. The deficit itself is the result of some particular choices made by regulators and administrators. Its very existence is a reflection of the broader struggles over the marketizing of universities and the social contract for public services, and it’s this battle that academics are fighting, whether we know it or not. 

Just to be clear, USS (the scheme for all universities older than 1992) is a defined benefit (DB) scheme, with limits. It is not a final salary scheme, Members of the scheme (us) are entitled to a fraction (currently 1/75)  of our average salary for every year of our retirement. If you are paid over £55,000 (only the higher senior lecturer grades and professors are) then you make contributions into a pot of investments and your return depends on the financial markets. This kind of arrangement is known as defined contribution (DC). DC is something of a euphemism because contributions are always defined and the name distracts attention from the fact that the returns – the benefits – are largely due to chance. DC is simply a tax-efficient savings pots.

The deficit exploded into our consciousness after USS’ three yearly valuation in mid-2017 and subsequent politicking. Universities at first accepted and endorsed it, but now Vice Chancellors are lukewarm. This morning Sally Mapstone, Vice Chancellor of the University of St Andrews circulated a letter sent to Universities UK (UUK) , in which she writes ‘It is now very clear that the current valuation does not command the confidence of USS members at St Andrews, and for that reason we support the call for an independent assessment of the valuation and the scale of the USS deficit.’ Her letter is simultaneously encouraging and troubling – encouraging beacuse in hints at a solution, but troubling because it implies that there is such a thing as a correct valuation, and that a bigger calculator will get there.

And, I suppose, once the facts are discovered we must all just fall into line.

Facts are made. They are made in laboratories and by experts, by machines and instruments and practices. As Donald MacKenzie points out, even the etymology of the word reassures us of the labour involved in assembling the factual.[1] Financial facts are especially made, complex representations of states of the world – and because of that they are irredeemably political. You may think of your overdraft as very concrete, in the sense that the rock David Hume kicked was all too solid for his toes. But even your overdraft is the result of considerable calculation and social and material coordination: what you paid in and when you paid it, what you bought and when those charges were processed. The overdraft is no innocent; as anyone who has been on the wrong side of a bank fine or wrongful credit card transaction will know, it looks politically charged soon enough. We discover it is a microcosm of capitalist politics: the bank makes the rules and for the most part we simply have to go along with them. We find ourselves in a similar position regarding the USS deficit. A group of powerful players have changed the rules and we have been left in the cold.

It is possible, as scholars documenting the sociology of science have been saying for years, to generate different facts – entirely different knowledge worlds – from the same materials. What’s more, they may each be true in their own context. John Law and John Urry write that ‘different research practices might be making multiple worlds…such worlds might be equally valid, equally true, but simply unlike one another’.[2] USS helpfully demonstrate this point by providing four different valuations, all of which are true and valid but are simply unlike each other.

  • The headline figure comes from USS’s everyday accounting methodology, which it calls a monitoring basis. It writes: ‘The figures given in our Reports and Accounts were on our monitoring basis and reported liabilities of £72.6bn – a funding deficit of £12.6bn and a funding ratio of 83%.’ This estimate (as USS calls it) of shortfall is driven by USS’s assessment of future returns, and I will get back to why these are so bad in a moment. The funding ratio of 83% is roughly in line with other UK defined benefit schemes, by the way.
  • The accounting measure following the set of rules called FRS102 calculates a deficit of £17.5bn. This measure is intended solely for comparison between schemes.
  • On a “self-sufficiency basis” – the amount that would be required if the scheme was to move everything into a risk-free investment – there is a deficit of £27.4bn.
  • Finally, by USS’ ‘best estimate’ view, the scheme is in surplus. According to the trustees of the scheme, there is no problem at all. (But, says USS ‘our ‘best estimate’ by definition only has a 50/50 chance of success and in order to ensure USS pensions promises are properly secure, and to be compliant with legislation, we have to apply a degree of prudence.’)
  • There is a fifth valuation driven by the amount that an insurance company would demand to take the scheme over, but that need not detain us here.

We may conclude, then, that the USS is operating at somewhere between a surplus and a deficit of £30 billion, depending on how you choose to count. And that is where the politics comes in.

By law, a pension must be revalued every three years. The calculation of surplus or deficit is based on the assumed future liabilities of the pension set against assumed future revenue streams. Neither of these are straightforward, and the basis on which calculate them reveals much about our aspirations for the organization of society.

In terms of sorting out the eventual liabilities, two things really matter: how long we live – for obvious reasons – and the returns the fund can expect on all the money that we and our employers have paid in. To deal with the former, USS has assumed that we will live 1.5 percent longer each year. This may be a ‘prudent’ measure, but it is at odds with current practice in a sector cheerful about slowing growth in life expectancy: the insurance company Legal & General has, for example, just released £330 million of reserves that believes it no longer needs to cover growing life expectancy.

In terms of long term income, the valuation hinges on the return available from so-called ‘risk free’ assets, usually in the shape of government bonds (gilts). Pension funds are required to keep a certain amount of long-life investments to match their liabilities. But the return on bonds fluctuates with interest rates (and expected future rates). Bonds pay a fixed coupon, in terms of x pence per pound; often they pay this at the end of the term and so the market adjusts the prices of bonds to make the return fall into line with interest rates. At the risk of oversimplification, if a bond pays more than interest rates, people will buy it. The price will drift up until the return (the coupon as a percentage of the bond’s price) falls into line with interest rates. And vice versa: when interest rates go up, bond prices go down. In a prolonged low-interest environment, like the one we have enjoyed for nearly a decade, it follows that bond investment will be unattractive. Other factors, such as investors looking for safe havens for their funds, drive prices up even further to the point where USS believes that the long-term return on inflation-linked gilts will be -1.5%. In other words, holders of bonds are having to pay for the privilege of keeping their money safe.

At the 2014 valuation In 2014 USS had a deficit of £5.1 billion. By law the pension must have a long-term recovery plan, and USS launched a 17 year programme. In the face of low bond yields, USS turned to the stock market (equities) in search of better returns. Stock markets raced upwards: in the five years to March 2017, the value of USS’s assets increased by 12 percent annually, and in the 12 months to March 2017 assets had grown by more than £10bn, or 20%. But the scheme’s liabilities outpaced the growing assets. Why? It is a matter of future returns, says USS: ‘while there has been significant focus on the existence of a deficit, it is actually the outlook for future returns that has had the most material influence on the outcome.’

Alas, the same diminishing returns apply to rising equity prices as they do to bonds: the higher the price of a stock, the lower the dividend in percentage terms (the yield). As we keep paying into the scheme USS needs to keep buying assets, but it can’t find anywhere to put them. It now has to forecast that it will receive much lower returns than the five percent originally planned. USS states this explicitly, writing ‘while the investment team has continued to be successful against the benchmarks set its expectations of how successful it can be in future reflect the reduced returns available in the markets.’

But USS is not a scheme at the mercy of the markets. It is based on a ‘covenant’ between employers and employees designed to pay a retirement wage at a set amount. It is underwritten by the entire higher education sector, and with all the universities standing behind it, USS could take steps to recover from the deficit. In particular, it could place less of its funds into bonds – which, remember, now cost money to own – and more into other areas, be they equities, hedge funds, property investments, green energy or whatever took its fancy. Or it could simply wait, paying its pensions and running a deficit, until economic times changed and the deficit contracted once more. It has become apparent, however, that the universities no longer want to sign up to this bargain.

In the summer of last year USS asked employers – via Universities UK – whether they wanted more or less risk. It might seem a silly question, for out of context everyone wants less risk. But universities have a particular agenda. USS is what is known as a ‘last man standing’ scheme, meaning that should institutions start to fail, risk would pile up on those still operating. And university managers, now thoroughly versed in the language, practices and salaries of business, are obsessed with avoiding risk. Risk has practical implications, for under current accounting rules employers must carry full pension liabilities on their balance sheet. This affects administrators who, seeing themselves primarily as curators of rankings in a market-driven system, are diverting all the funds they can into an arms race of building and infrastructure investment. Universities can borrow very cheaply – often at less than the cost of inflation, and almost free money is too good a ticket to be passed up. But lenders are not going to offer such preferential terms to borrowers with huge pension liabilities; for a university, the covenant of USS begins to loom as an enormous blot on an otherwise shiny credit rating.

Even then, a majority of employers (58 percent) responded that they were happy with the level of risk. Enter the pensions regulator. In October last year the regulator wrote to USS instructing it to downgrade its confidence in the institutions. Josephine Cumbo reported the story in the FT (here if you can access it) and quoted a letter from the regulator, ‘We take the view that there are issues with the sector’s ability to increase payments to the scheme, which might arise under realistic downside scenarios, to remove the deficit over an appropriate period.’ Though the modelling will have been complicated, the principle is clear enough: less underwriting means more risk, which must be offset in other ways. USS found itself needing to articulate an investment strategy that poured more money into those costly, risk-free investments, leading it to estimate investment returns of less than inflation for the next decade. (Ironically, that is exactly the kind of return it would get from lending to a safe haven such as a university – where do you think all that cheap money is coming from?) Lower investment returns mean a bigger deficit: simple arithmetic, innit.

Here I speculate, but it seems that UUK took the opportunity offered by the regulator’s intervention to back the large minority of respondents in calling for an end to defined benefits, doing away with the employers’ share of all future risk arising from the scheme, for ever. The risk doesn’t go away, of course, but simply moves into the laps of employees where – according to neoliberal visions of a market-organized, individualist society – it belongs.

Let me recap. Racing equity markets and the expectation of low interest rates in the longer term have created an environment for poor future returns on investments. Unnecessarily cautious life expectancy assumptions have increased the expectations of future liabilities. USS has enjoyed some flexibility in generating above market returns by way of the covenant with the employers, but employers are increasingly unwilling to underwrite the scheme. Once the covenant starts to erode the ‘last man standing’ nature of the scheme makes membership a prolonged game of prisoner’s dilemma, and as everyone with an MBA knows, the strategic option is to cut and run. Everyone without an MBA – thieves and prisoners included – recognises that the best outcome all round comes from sticking together. Honour among thieves if not vice chancellors, but that’s an aside. Finally, the pensions regulator has cast doubt on the sector’s ability to underwrite the scheme, and ordered USS to buy more loss-making but safe bonds. And there we have a grotesque deficit.

If this sounds suspiciously like politics, it is. A scheme that is solvent on a going concern basis for 40 years, and backed by one of the longest established and most robust sectors in the country – we’re hardly running railways or overstretching ourselves supplying government contracts – is recast as being risky and in deficit by the removal of the foundational assumption of the scheme, that we are all in it together, now and in the future. Prudent assumptions and compulsory stand-on-your own feet valuations are a device to crystalize risk now and force it into the matrix of labour relations.

The question of who should mop up the risk then becomes a reflection of the bigger question of how the higher education sector should be organised. Employers, who see themselves as corporate businesses, do not want to carry risk. The regulators worry that our pension scheme might end up in the taxpayers’ lap; as we are now employees of corporate organisations that would be politically unacceptable. The easiest thing is to offshore the whole lot onto us. That’s an ideological choice, driven by the expansion of a market-style social contract into HE. It’s just another aspect of the barrage of quality measures and assessment, or the toxic problem of student fees, as regulators strive to legislate for a market in a market-averse sector.

It’s also the expression of a particularly nasty form of political meanness that seems to have reared its head in recent years. The Economist’s Buttonwood Notebook (always an academic’s friend) catches the flavour here: ‘In a DC scheme, it [risk] does fall on the employee. In a DB scheme, it rests largely on the employer. But in a sector heavily funded by the public sector that could mean the taxpayer…With public pensions, the rich tend to subsidise the poor. They are also run on a pay-as-you-go basis with today’s workers paying the pensions of current retirees.’ Buttonwood imagines a world where everyone looks out for themselves: God forbid that the rich should subsidise the poor or today’s hard workers should pay the pensions of those skiving retirees. Or indeed that taxpayers should underwrite the pensions of people who work for them, accepting poor conditions and sub-market salaries to pursue the task of educating their children.

It is true that 2017 and 2018 are a low point for pension fund managers looking after defined benefit schemes but USS needs to be understood in the long-term – it will have to last for 70 years and more to cover the obligations it has already accrued. The trustees themselves think – their ‘best estimate’ – that this problem will go away, but regulation demands they act otherwise; our union’s actuary also believes there is no fundamental problem with the scheme. It will continue to be funded by the contributions of future members because we are all in this together. University administrators have an opportunity to underwrite the covenant and recognise that it is beneficial for everyone to maintain those obligations. They do not have to kowtow to a regulator that demands our valuation starts off from the ground zero of economic apocalypse.

Our current dispute is a skirmish in a longer war. Defeating these proposals is simply a means to a bigger end: forcing politicians, University administrators and the public to think differently about the sector and why it matters.

[Many thanks to all of my colleagues and others on line and on Twitter from whom these ideas and comments havebeen gleaned.]

[1] MacKenzie, D. (2009). Material Markets: How Economic Agents are Constructed Oxford: Oxford University Press.

[2] Law, J., & Urry, J. (2004). Enacting the social. Economy and Society, 33(3), pp. 397.