We should all be as angry as university staff about the state of our pensions. They’re a crisis in the making

The proposal to convert pensions into private investment product is one of the central issues in the dispute. For most of us, this is already the reality

University staff are striking against the destruction of the USS scheme. (Alamy)

With strike action over university pensions now entering its second week, and the first day of Acas talks seemingly gridlocked, there’s little prospect in sight of an end to the dispute. But how many of us really understand what’s going on with the Universities Superannuation Scheme (USS) – or, come to that, the politics of our own pension?

The truth is that these strikes are the canary in the mine. The UK pension system is a mess, and it’s brewing up a dangerous cocktail of old-age poverty and financial instability. University staff have been galvanised into action by suddenly having the prospect of a secure retirement taken away. But for many, that’s a prospect we never had in the first place. UK retirement income replacement rates are the lowest in the OECD, and are only likely to get worse. So why aren’t we all as angry as USS members?

Perhaps one reason is that pensions seem complex, inaccessible and dull. So let’s go back to basics. The purpose of a pension system is to give us security in old age after a lifetime of work. At a societal level, one way or another, this means the wealth produced by people in work has to support those no longer able to work. Deep structural problems make this challenging in today’s UK. An ageing population means more retirees supported by fewer workers. Precarity and stagnating wages mean many of today’s workers simply can’t afford to save. And with jobs for life largely a thing of the past, employers increasingly want to wriggle out of their responsibilities on pensions as deferred pay.

The government’s solution to this is really no solution at all. It’s straight out of the neoliberal playbook: risk and responsibility should be pushed onto individuals, and there’s no problem that markets can’t solve - preferably with a healthy dose of financialisation thrown in for good measure. If individuals don’t behave like the textbook rational consumer, they should be “nudged” into doing so.

Under “automatic enrolment”, most of us will now be signed up to private pension schemes chosen by our employers. Many of these will be run by for-profit insurance companies, who successfully scuppered the original idea that the government-backed, not-for-profit NEST should be the default option. Overwhelmingly, they will be “defined contribution” (DC) schemes – meaning the pension we get will depend on how our investments perform. And most of us will probably accumulate several different pots as we move from job to job, all managed by different companies.

There’s just one problem with this. Actually, I lied: there’s a million problems with this. But you haven’t got all day, so let’s stick with the most obvious. A DC pension is not a pension. It’s just an investment product, a tax-efficient way to save. USS is one of the UK’s few remaining “defined benefit” (DB) schemes, which pay out a guaranteed pension. The proposal to convert it into a DC scheme is one of the central issues in the dispute. For most of us, DC is already the reality. The principle that it’s not good enough to leave each other to sink or swim; that it’s fairer and more efficient to pool our risks and resources; in short, that we should have an actual pension system and not just a series of individual investment portfolios – this is at the heart of what striking university staff are fighting for.

Instead, the UK has created a system where individual savers bear all the responsibility but most have very little real power. This dangerous cocktail hands huge power to the City, leaving the door wide open for rent-seeking and self-serving behaviour. Experts like John Kay, Paul Woolley and David Pitt-Watson have long been sounding the alarm about the level of rent City middlemen are siphoning out of the pensions system. This matters more than you might think: because of compounding, fees that eat 1 per cent out of your pension annually can erode it by up to 30 per cent by the time you retire. Yet politicians have seemed paralysed to take serious action: time and again, the demands of City lobbyists have been placed ahead of the needs of millions of workers. And why not? The beauty of DC is that, in a very real sense, it’s not their problem.

It doesn’t have to be this way. We could look to countries like Australia and Denmark, whose not-for-profit pension schemes vastly outperform the UK’s for-profit providers. We could explore new ways of sharing risk between employers and employees, as the Dutch pension system does. We could slap stricter legal duties on City firms to put savers’ interests first. And we could tackle the precarity and poverty pay that stops people from saving enough in the first place. The university strikes have shown that we don’t have to simply lie down and accept an impoverished old age. The challenge now is to make this the start of a wider movement to demand decent pensions for all.