Looking to the future

The Labour Chair of the Parliamentary Environmental Audit Committee, Mary Creagh MP, has written to the top 25 pension funds to enquire about what they are doing to “safeguard people’s pensions from the financial risk of climate change”. Ms Creagh was reported in City AM on 5 March as saying that “a young person today may be 45 years away from retirement. Over that time scale climate change risks will inevitably grow”.

The lack of understanding implied by this statement is breath-taking. Setting aside the problem that personal pensions[i] , the kind subject to auto- enrolment that pension funds provide – represent poor value for money because of the level of management fees and other expenses and place all the risk on the employee, the issue here is a failure to understand the kind of risk that climate change brings.

Modern Portfolio Theory (MPT) holds that there are two kinds of risk: systemic and unsystemic. As we all live on the one planet, the risk associated with climate change is systemic. It is born by everyone and is independent of any investment decision the individual may make. With systemic risk there are no hedges available, no clever portfolio strategies by which it can be reduced. Ms Creagh might just as well have written to the Met Office to ask about what steps they were taking to stop climate change.

The primary interest of pension funds is to flog their product. They need to attract and retain customers – and the government’s requirement for auto-enrolment ensures a steady stream of these. They market their product by stressing their skill at achieving a good investment return and, to a lesser extent, the level of their fees. MPT holds that the future return on investments is largely independent of investment skill and, perhaps somewhat optimistically, the return will follow the long run average – no more than around 5% per annum real rate of return[ii]. Funds that imply a higher return are either in the snake oil business or taking on more risk that the punter realises. Rock bottom management fees of 0.5% per annum still represent 10% of this anticipated future return. Many management fees and other hidden costs are significantly higher than 0.5% per annum.

The horizons of pension funds are also determined by MPT. At the heart of MPT is the concept of discounting the future. This too is done at the 5% per annum real rate of return. Thus a certain loss in 45 years of £1 is treated as equivalent a certain loss of only some 10 pence today. Even if the pension funds had any way of influencing global warming in 45 years time, this interest would only represent one tenth of their concern about a similar risk today.

We need a solution to global warming, but it isn’t going to come from pension funds – or, regrettably it seems, from Ms Creagh. The only way out of the crisis we face is through genuine democratic control – the kind that promotes the interests of all workers, living and unborn. It’s called Communism.

[i] The alternative is a defined benefit scheme provided by an employer, but they are fast disappearing and, in the case of university and college lecturers, under current attack.

[ii] The only exception is when insider information is exploited. This is only possible for crooks and the super-rich.

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Work ’til you drop? I don’t think so!

It’s worth reminding ourselves from time to time that, contrary to the establishment view, capitalism is not the permanent and definitive form of society, it is merely a transitionary phase in human development with a finite shelf life. There are a number of developments in the 21st Century that will make its survival into the 22nd highly problematical. These include:

  1. global warming and capitalism’s inability to deal with the cause – society’s dependence on fossil fuels;
  2. as predicted by Marxist economic theory (and largely ignored by non-Marxists), increasingly severe economic crises due to the over-accumulation of capital and a long-term tendency for the rate of profit to decline;
  3. increasing inequality and the failure of more humane variants of capitalism such as the Swedish social democratic model to survive; and
  4. demographics.

The last item is frequently overlooked. Growing world population clearly represents a threat to humanity’s survival but the greater threat to capitalism’s survival may come from its relative success in extending the average life of ordinary working people – assuming that is that the profits driven pharmaceutical industry doesn’t botch its response to the next pandemic or the equally profit greedy food manufacturers don’t kill us with obesity and diabetes generating food. Data published last week by the Office for National Statistics predict that a girl born between 2010 and 2012 can now expect to live until 82.8 while a boy is expected to live until 79. The previous predictions in 2005 were 80.6 and 76 respectively. The immediate response from the so-called pension ‘industry’ was that the state pension age will have to rise much faster than currently anticipated by the government “almost inevitably reaching at least 70 by the middle of the century”. Their motive, of course, is the huge profits they make peddling ‘personal pensions’, but there can be little doubt that the government will comply with their wishes.

What are we to make of this? By the middle of the century capitalism will have created an immensely wealthy 1% who own practically everything (where we live, the land beneath our feet, the services on which we rely) and who, apart from an ambitious, competitive minority, will neither wish nor have to work. For the remaining 99%, we will be required to work (or claim survival level ‘benefits’) well beyond any age at which we might be considered competent. Nonagenarian bus drivers? I don’t think so. Old people on jobseekers allowance? Much more likely!

The alternative is, of course, socialism which, in its fully developed form, has been described by Marx as from each according to their means, to each according to their need. While it will become immensely attractive to the exploited majority, it won’t, however, happen by itself. It will take organisation and effort. That’s where we in the Croydon CP and socialists and communists across the county and worldwide come in.