The Pension Conspiracy

[John Simkin]

One of the many reasons why Gordon Brown should not become our next prime minister:

http://business.guardian.co.uk/story/0,,2050248,00.html

Phillip Inman

Thursday April 5, 2007

The Guardian

Gordon Brown was accused yesterday of cutting pension benefits for millions of workers while he enjoyed one of the most generous occupational schemes in the country.

The Liberal Democrat pensions spokesman, Lord Matthew Oakeshott, said the chancellor would have a gold-plated pension pot worth more than £3.5m if he became prime minister, at a time when many workers were struggling to save for an adequate retirement income.

He said the chancellor's decision 10 years ago to strip pension funds of a £5bn-a-year tax credit had done immense harm to occupational schemes, yet would leave MPs' pensions unaffected after successive parliamentary votes to make up the shortfall with taxpayers' funds.

Mr Brown's pension pot could entitle him to a retirement income of more than £100,000. The figure is the Lib Dem's estimate after the Cabinet Office refused to say how much his pension was expected to be.

A Cabinet Office spokeswoman said the pension would be made up of his entitlement to two-thirds of his £60,675 MP's salary and half the £128,174 top-up paid to the prime minister. The prime ministerial element of the pension is paid as soon as a premier quits No 10. The element of Mr Brown's pension based on his MP's salary will be payable when he reaches 60.

David Cameron, should he win the next election, would probably be rewarded with a pension pot in excess of £5.5m, according to Lib Dem calculations, mainly because the Tory leader, at 40 years old, has a longer life expectancy. The Speaker of the House and the Lord Chancellor also have special pension arrangements that top up their basic entitlement.

Lord Oakeshott said he believed the revelation that Mr Brown cost pension savers £5bn a year with his tax grab in 1997 was a signal that MPs needed to rethink their own pensions and the guaranteed pensions offered to all public sector workers.

He said the decision to exempt MPs and high court judges from last year's pension tax reforms showed contempt. Last April the government imposed a tax on pension pots worth more than £1.5m, but after lobbying made several groups exempt.

"The situation is grossly unfair. We have a situation where the bosses in government have protected their pensions, when private sector workers are seeing their pensions whittled away, not least because of the abolition of the £5bn tax credit for pension funds," he said.

"Gordon Brown should follow the lead set by the Lord Chancellor, Lord Falconer, who has said he will not take his extra pension. There is also no justification for the secrecy that surrounds the prime ministerial pension."

Listed companies must give details of board directors' pensions, but there is no similar rule forcing the cabinet to match their openness.

Mervyn Kohler, head of policy at the charity Help the Aged, said all MPs needed to consider whether they presided over a fair and equitable pension system. "When you consider how protected public sector pensions still are and especially the pensions of MPs, and how much people in the private sector have lost out, it must be something they should think about. The House of Commons is an unbelievably insulated world."

The shadow chancellor, George Osborne, said yesterday Mr Brown still needed to justify his decision to abolish dividend tax relief on pensions. He said it remained unclear how it had cost pension funds over the last 10 years and why the Treasury kept civil service advice on the matter secret for more than two years.

"We have seen estimates for the damage done to pension funds putting the final cost at around £100bn. What is his estimate?," he said. "Why did the Treasury refuse to release the pension tax documents for almost two years and, when this position became untenable, finally release them late on a Friday afternoon, just before Parliamentary recess and just as the chancellor was leaving the country?"

The average annual pension for a worker in local government is £3,900 a year. In future they will probably have to work to their late 60s in order to get the pension whereas Brown can take his at 60.

[Dave Greer]

One of the many reasons why Gordon Brown should not become our next prime minister:

http://business.guardian.co.uk/story/0,,2050248,00.html

<snip>

The average annual pension for a worker in local government is £3,900 a year. In future they will probably have to work to their late 60s in order to get the pension whereas Brown can take his at 60.

I think what Gordon Brown has done to British workers pensions is a national disgrace. To whom do we complain? Our MP? In any case the damage is now done, as I expected it would be ten years ago when he started creaming tax out of pension schemes to pay for his reforms. It's been known for far longer ago than 1997 that pensions in the UK were a demographic timebomb waiting to go off. Gordon Brown is at best guilty of dereliction of duty toward future retirees. He is also condemning millions of hard-working people to a retirement on the breadline. I don't suppose he'll feel too bad when he retires, curled up in the study of his swish country pad, inhaling a glass of Napoleon and drawing on one of Cuban's finest.

[Don Jeffries]

The situation in America isn't any better. We all worry about losing our pensions, and with good reason. Those who run the big corporations are just as heartless and ruthless as they've always been. Sooner or later, some Democrat will echo Huey Long's old "share the wealth" issue, and point out the obvious; the rich ARE getting richer and the poor ARE getting poorer. I read a story today about the CEO for Ford making 37 million for 4 months "work." Like so many of these sinfully overpaid plutocrats, he certainly did a bang-up job during his tenure; Ford lost 12.7 billion last year. I don't believe in communism, but there is no way that any rational marketplace should pay someone 100s of times more than anyone else.

[John Simkin]

The situation in America isn't any better. We all worry about losing our pensions, and with good reason. Those who run the big corporations are just as heartless and ruthless as they've always been. Sooner or later, some Democrat will echo Huey Long's old "share the wealth" issue, and point out the obvious; the rich ARE getting richer and the poor ARE getting poorer. I read a story today about the CEO for Ford making 37 million for 4 months "work." Like so many of these sinfully overpaid plutocrats, he certainly did a bang-up job during his tenure; Ford lost 12.7 billion last year. I don't believe in communism, but there is no way that any rational marketplace should pay someone 100s of times more than anyone else.

Up until recently, people in the UK were not protected from Corporations stealing from their pension funds. What is the situation in the United States?

It seems that George Bush has been pushing a policy pioneered by Margaret Thatcher in the UK (with similar consequences):

Matthew Rothschild, The Progressive (April 5, 2007)

George Bush likes to boast about the high rates of homeownership. But today in America, millions of homeowners are at risk of seeing their prized possession taken right out from under them.

Over the last decade, we have been witnessing some of the most brazen acts of mortgage entrapment ever to hit the American housing market.

Subprime lenders have coaxed eager consumers to buy or refinance their homes often with no money down, and at seemingly low interest rates. But now millions of homeowners are paying way more than they can afford.

Their dream of homeownership has quickly turned into a nightmare of foreclosure.

And this nightmare is beginning to rattle the economy as a whole.

All the while, the government has stood idly by.

Buying or refinancing a home is not what it used to be. Traditionally, you’d get your mortgage through a savings and loan. The banker there would inspect your income and credit history to see if you could pay back the loan, and you needed to come up with 20 percent of the loan as a down payment. The loan would have a fixed interest rate over fifteen or thirty years. The homeowner would have to set aside money for property taxes and homeowners’ insurance. And the mortgage would stay in the originating bank.

Things are different now, thanks to the so-called subprime mortgage market, which accounts for almost one out of every four home loans currently being written. Today, mortgage brokers barrage consumers with offers of no-money-down loans, and last year, “more than 37 percent of subprime loans were made without verification of borrowers’ incomes,” The New York Times notes. Nor do such lenders typically require borrowers to escrow money for property taxes and homeowners’ insurance.

The terms of the loans are also much different. Adjustable rate mortgages have proliferated, with consumers getting seduced by offers of low interest rates the first two years of the loan only to be slapped with steeply escalating rates in subsequent years.

And the original lending institution now often sells the mortgage on the financial markets rather than hold onto it. When times get tough, faraway investors are even less open to renegotiating terms than local savings and loans were.

The boom in this industry has been extraordinary. “From 1994 to 2005, the subprime loan market grew from $35 billion to $665 billion,” the Center for Responsible Lending notes in a report entitled “Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners.”

But so has the bust. “We estimate that one-third of families who received a subprime loan in 2005 and 2006 will ultimately lose their homes,” the report predicts.

While opening up the possibility of homeownership to people with lesser means or spottier credit is something that progressives have advocated for a long time, the way the private sector has done this has been criminal. “Because the subprime market is designed to serve borrowers who have credit problems, one might expect the industry to offer subprime loan products that do not magnify the risk of loan failure,” the report says. “In fact, the opposite is true.”

First of all, adjustable rate mortgages are inherently duplicitous. They play upon the attractiveness of low interest rates up front, and they exploit ignorance of higher rates later on.

Second, many who get subprime loans could easily have received safer, less expensive mortgages in the prime market but were steered into the subprime loan by a mortgage broker.

Third, these brokers sometimes get a cash bonus from the lender for getting the consumer to agree to a higher interest rate than the lender was expecting. And the broker’s incentive is not to ascertain creditworthiness but to clinch the deal. The broker bears no financial cost if the consumer ends up foreclosing.

Fourth, subprime mortgages often limit repayment of the loan’s principal, so that for many years the homeowner is just paying back interest and not accumulating equity.

Fifth, some subprime mortgages actually penalize the homeowner for paying off the loan ahead of time. This is especially pernicious, since if the consumer can’t make the payments and has to sell the home prematurely, the lender imposes a huge extra fee at closing, draining whatever equity the homeowner may have acquired.

African Americans and Latinos take subprime loans at astonishing rates. More than 50 percent of the home loans to African Americans are subprime. For Latinos, it’s 40 percent, the report says. “If current trends continue, it is quite possible that subprime mortgages could cause the largest loss of African American wealth in American history,” testified Martin Eakes, CEO of the Center for Responsible Lending on February 7 to the Senate banking committee.

Some mortgage executives are absolutely unapologetic. “People are adults and made choices in their lives because they wanted to own a home of their own,” Countrywide Financial CEO Angelo Mozilo told Bloomberg news service on March 22. “America’s great because people can make those decisions for themselves.” Countrywide Financial is the nation’s biggest mortgage lender.

Given the reprehensible tactics in the industry, and given the softness in the housing market, foreclosures are going through the roof. They were 43 percent higher in the third quarter of 2006 than the third quarter of 2005.

“Foreclosure rates will increase significantly in many markets as housing appreciation slows or reverses,” the Center for Responsible Lending says. “As a result, we project that 2.2 million borrowers will lose their homes and up to $164 billion of wealth in the process.”

Such a loss constitutes a threat to the overall economy. Several leftwing economists, most notably Dean Baker, have been warning for years about the danger of the housing bubble bursting. Now that it has begun to pop, even the Federal Reserve has taken note, though it has tried to put a happy face on the situation. In testimony before Congress on March 28, Fed Chairman Ben Bernanke said, “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.” But he added that the Fed needs “flexibility” in case the problem spreads.

The full article can be read here:

http://www.alternet.org/stories/50120/

[Don Jeffries]

There is no real safety net to protect the pensions of American workers, and we still hear about people who've worked for a company for decades losing everything due to the criminal misappropriation of funds by corrupt management. This is an issue that should be raised by the Democrats, who claim to be the party of "the people," and supposedly represent the interests of the working class. Other than someone like Dennis Kucinich, most prominent "liberals" just aren't interested in these kinds of classic David vs. Goliath issues any more. Most of us here have the majority of our net worth tied up in the volatile housing market, where homeowners have been fortunate enough to make hundreds of thousands of dollars in extremely fragile equity over the last decade, and at this point the market appears to have run out of buyers, and uncertainty lies ahead. Combined with the mathematical nightmare that will occur in the next decade or so, when all those baby boomers retire and will have to be paid their Social Security, we can all certainly be even more nervous than ever about our corporate leaders predilection for inserting their hands in the pension cookie jars.