Response to: Thinking about pension plans: what are they?
Below is a response to the original rant Thinking about pension plans here on x.cpress.org.
The response is written by E. Niles.
To make things confusing, I have also included my response to EN's response on this same page below. I have attempted to clarify my argument and responded below. I have no doubt I will have to look at the numbers to see if any of this makes sense.
Response to CPress Brief Rant on Pensions & Capital
A pension benefit is a contractual commitment. More and more, it's not a promise of a dollar amount, but a commitment to provide workers a program that will facilitate or result in a stream of income in retirement. For example, the DC commitment is to establish individual member investment accounts for workers, remit contributions from the employer and deducted contributions from workers' pay into these accounts, provide a menu of investment funds with different levels of risk to choose from, and usually provide a recommendation for a financial advisor to assist with investment decisions. Another example, the target benefit pension commitment is to remit contributions form the employer and deducted contributions from workers' pay into a multi-employer trust fund that is managed by a fiduciary board and professional investment managers for the purpose of delivering an income in retirement.
It is politically useful to conceptualize workers' pensions as deferred wages because workers and retirees understand this and it is a proven, effective message for mobilizing plan members. A pension "cheque" is a regular payment to retirees, in accordance with a contract, and largely based on time (service). In collective bargaining, pension plan type/benefits/contribution rates are negotiated as part of the monetary package. It is widely considered part of total compensation. Pension forms part of the deal for providing labour, just like wages. The wage metaphor is also helpful for explaining pension indexation - "it's like a wage increase to keep up with the cost of living".
Registered pension plans are hugely different than RRSPs. The most important and tangible difference is what happens in the event of an economic downturn. The $ impact on plan members vs. RRSP holders are significantly different due to risk pooling and economies of scale. There are also a number of legal, regulatory and political differences when it comes to employers and the state's responsibility to do something about it. These aren't theoretical differences.
Pension plans require sustained, high investment returns in order to deliver an adequate retirement income to plan members. Workers and employer contribution amounts alone do not, and will not, cut it. I am not convinced that publicly owned productive enterprises, like energy generated from a public windfarm, can result in a level of investment income comparable to a typical TB or DB plan's diversified, global portfolio. That is also to say I am highly skeptical that this program could deliver comparable levels of retirement income. Are you suggesting that workers' expectations for retirement income will need to be lowered? Also, what would a risk mitigation strategy look like? What if this wind farm is not attractive to the private sector, isn't profitable etc.
(OK I now see you don't agree that investment returns pay for a chunk of retirement income. Whether we call it returns or wage share of surplus, there is a significant % of any pension formula that needs to be generated in addition to employee/employer contributions.)
–EN
Responding to the response
I think that the contractual promise frame makes me even more convinced that pension funds are not wages at all. Money paid by pension funds to retirees are just part of the future surplus product of capital. This is, in the classical sense, a wage but not a wage in competition with the worker's wage attained by current production.
To be clearer, I do think it is clear that pension returns pay for part (or all) of the retirement wage.
In fact, I think you can make the argument that OVER 100% of the pension "financial investment returns"1 is net revenue from investment. And, that workers only get a wage slice of this net revenue as "their" pension money.
In this situation, pension funds (I agree, not RRSPs) are simply money not paid to workers (like any concession) and kept by capital as money to invest in future capital profit growth. In the end, this is the same not paying the worker this wage for their current work at all – easily seen in that your estate does not get the pension wage if you die before retirement which is different from any other investment of wage.
The reason that workers do negotiate pensions, of course, is to get a wage in the future. But, because not all of us will get this wage, actuarial sciences come into play about just how much capital (not to be confused with your current employer) is saving not giving workers wage money now.
Clarification
In this argument I am conceptualizing pension funds as part of the investment bill of capital (the part of the surplus profit that is not kept by capital but is reinvested in new production) instead of wages the corporation pays its workers. This is along the lines of a Classical understanding of the economy where profits and wages are in competition for surplus product.2
Instead of the pension money being deferred wages, it is invested seeking profitable production. Part of the net revenue of this future investment return is then provided to the worker in retirement as a wage. And, in such, only becomes a "wage" at this point.
This makes pension funds just a section of capital's investment "bill". I contend that even if pension funds didn't exist, the total amount of the investment bill of capital would not change or be affected at all.
In this case, as a class, we are simply negotiating future wages and not deferred wages when we negotiate pension funds.
A note on growth
"Growth" in the economy is surplus product generated from production through labour. It is represented as an increase in value through more coming out of that production than went into it. This "growth" is either captured by the workers or it is captured by capital.
The surplus product from publicly owned production is the same as privately owned production in a market economy. The difference is only in where that surplus goes – into reinvestment and profit or to wages.
So, if capital or a pension fund can own a private wind generating plant (or some other production), make a net return above its investment, give some of this return to workers (as a retirement wage), and still have money left over to re-invest then so can the government.
The economics of surplus do not change based on what entity owns it. The only thing that changes is what part of that surplus is used to support capital and what is used to support workers. For example, the state can be just as exploitative of workers as a private company if it keeps the surplus product and gives it to capital.
Pension negotiations
If we think of pension funds as being "funded" in part through "our wage" (a dubious notion since it is funded by the employer directly either way), we should see ongoing returns on that (part of the) investment going to workers wages. I do not think that we see this.
When a pension fund invests in private production in a market economy, it is subsidizing capital investment with what should have been workers wages. In doing so, it has transformed pensions from "deferred wages" to investment (which will only give a wage from future production of surplus).
In the end I am not suggesting that unions should not negotiate pensions. I am also not suggesting that workers should not demand those monies be put into pension funds (with the requisite contract protections).
However, if correct, this analysis might mean that any idea that when we bargain pensions that we are "giving up wage gains now for pensions later" is fundamentally flawed.
Finally, I think we can take back control over pension money and stop capital using that money to subsidize the exploitation of workers. We do this by returning to the notion that pension funds are socialized deferred wages invested in future production to provide a future wage. Then we need to constrain pension fund investment to only publicly owned production and expand the use of that surplus to provide a retirement wage for all workers.
Under classical economis there is no such thing as "financial returns" as all real profit is from surplus product and wealth transfer. Financial returns – those returns from putting your money in the financial markets – are fictitious and net out.
The non-classical/orthodox view is to look at profit as part of the price and wages are just part of the inputs of production. The result is the notion of a natural rate of profit that is applied after production has happened and is added to the price of a product through a "mark-up" or desired profit rate.
This silliness of a natural rate of profit being "on top" of the production costs is the neolcassical view and the Post-Keynesian view.
Marxists and labour generally rejects the neoclassical view as it means that (real) wages cannot be bargained – a notion that makes no sense if you look at history. The neoclassical position also doesn't make sense on a wide variety of other metrics from inflation to trade to value creation.