As a means to secure financial stability in retirement, private pension funds have been replacing public pensions around the world. In order to provide sufficient funds for a reasonable quality of life in retirement, individuals need to make monthly payments from salary for typically 35 years. Payment contributions differ between countries, ranging from 5% plus 3% from the employer in the UK, to 18.6% in Germany, with half the contribution paid by the employer. The funds then invest these monthly payments into a variety of assets in order to make a profit to pay these individuals at retirement.
The four main areas of investment are private equity, stock, real estate and government bonds. Private equity and stock are high risk investments and the return is often insignificant compared to the risk taken; real estate is considered as lower risk, and government bonds are lowest risk and are sometimes referred to as “risk-free” investments. By the end of 35 years, the total return from the entire portfolio is rarely above what the return would have been if the funds had only invested in government bonds. Private pension funds have thus been criticised for the enormous risks they take with people’s security in old age and the exorbitant salaries paid out to the fund managers.
Beyond the lack of financial return vis à vis risk taken, private pension funds’ investments can have a tremendous impact on social well-being given that they are one of the largest entities in financial markets. When the principal motive to the fund is financial return, the fund may be more inclined to overlook a profitable company’s poorer records in environmental and social costs. While real estate is considered lower risk, it comes at the expense of driving up current housing costs for the population, a cost that is in the end borne by workers which can include the funds’ clients. As real estate is intrinsically limited, senior care homes have become a new investment asset. In comparison, in the 70s and 80s, when financial return was not the funds’ principal motivation, the funds’ massive resources were invested in projects that would create more jobs for their members, and/or have more positive social impact despite lower financial returns, such as community infrastructure.In sum, the investment actions of private pension funds work in contrast to their clients’ overall interest on a macro scale.
A Pension Fund Proposal
The Institute of Care envisions creating a pension fund that can guarantee the provision of elderly care. The initial stages will benefit from a line of credit to increase wages and attract talent back to the care labor force; however, as more people opt to pay into its fund, it can operate by directing revenues towards care workers. The effective salary increase for care workers will lead to an increase in their purchasing power as well as their ability to save. While some may voice concerns over inflation, the Institute may also increase required pension contributions to mitigate inflation if better paid workers were indeed the problem; meanwhile it is important to note that a limited care labor force can lead to price hikes in elderly care provision, a form of inflation in itself.
Compared to a regular pension fund, where this differs is that contributions are directly allocated towards care work in the present, rather than towards investments that may or may not generate enough return to pay for a decent quality of life in the future. The current labor force pays for the current generation of retirees, similar to current public funded pension funds, but dissimilar to private funds where the individual chooses how much they want to save for their own retirement.
Contributions to the fund can be adjusted to cost of living so care workers will be paid sufficiently to have a dignified life themselves, and comes with fewer financial unknowns and repercussions than dependence on profit from investments with questionable social impact. Currently, there are few care workers because it is a poorly paid job, but with fair salaries and decent working conditions, it is very possible that it can become a respectable and desirable profession.
States of Care
For this residency, I decided to examine the conditions for the Institute of Care by looking at the situation of care workers. I ended up travelling to a Hungarian village to meet Kinga, who used to work as a lecturer in agricultural economics and now works as a migrant care worker in the UK.
In the UK, many care workers who provide care at a client’s home are migrant workers from Central and Eastern Europe working on a freelance basis. Freelance work is part of the precarious condition; however, particularly for experienced migrant care workers, freelance care work is preferable because it allows them to travel back home frequently and a typical contract is a live-in contract for a few months. Similar to many other remittance economies, the migrant workers are engaged in the wage differential. Wages for care work in the UK are low, but compared to wages in their home country, these wages are still higher. The workers are aware that their work conditions are problematic and that their wages are low by local standards, but because of the differential and because their goal is to return to their home country, they accept these conditions. Although the remittance economy does benefit the migrants’ home country, on a macro-scale these countries become dependent on migratory work, which exacerbates inequality at home. The route to work comes with fees that poor families cannot afford, leaving them behind in an economy based on the primarily familial remittance model. Furthermore, migrant care workers are skilled personnel in their home country with foreign language capabilities, and their outward move deprives their home from their talents. When the labor force concerned is migratory, labor organization is difficult, since workers can only offer guarantees up to the duration of their planned stay.
Workers are tired. They have already voiced that their work conditions do not allow them to deliver proper care. Not having the initiative to go beyond what they came for is not a fault. People have immediate needs that need to be met, whether a care worker or someone who needs care. They may not wish to take on additional duties beyond actually giving care; any additional actions need to respond very clearly to immediate needs. In our frantic search for alternatives to capitalism, we need to be aware that relying on initiative to create collective welfare shifts public responsibilities onto individuals and can tread a fine line with neoliberal structures.
As I spoke with Kinga, I began to realize some faults in my steps. My assumption was that care workers, being the ones who provide care, were the only ones who could guarantee care; a governmental body would simply administer it. I had unconsciously assumed the care worker as tied to this one profession, which is glaringly out of step in retrospect. Yes, there are those who feel care work is their calling, but changing career paths and fields is not wrong. And one who only works in care temporarily can exercise just as much care in their work as one who dedicates their entire life to the profession. Even individuals who stay on one career path must eventually stop working, so guarantees need to extend beyond individual workers’ lifetimes.
Guarantees of a long term scale, such as that of this proposed pension fund, must be from a stable body that exceeds the individual. In the ideal scenario, this is publicly administered by the state and owned by all. It is critical that workers have a say in deciding the conditions to do their work as they see fit, and there are many ways to exercise good governance. It however does not need to be created and owned by workers in order to be fair. We can and should be fair to people even if they haven’t pledged allegiance to our cause, whether that be in the form of a co-op membership or citizenship.
Return to the Public
Governments have largely turned a blind eye to the care work situation, and there is a black market for migrant care workers. When there are people who are willing to work because their situation is more desperate, it hides the gaping deficits in our society. Allowing this situation to continue means they don’t need to engage in the challenge to change structural problems. It’s time to engage in democratic debate for pension reform. In our quest for collective welfare, we already have the biggest representation of our collectivity in the government. We shouldn’t erase their responsibility for the hopes we had once vested in democratically elected representatives. The elderly, the care workers, and others who need care don’t have time. Despite its shortcomings, the government is in the unique position to guarantee care for everyone now.
The private pension system does not provide care and it is risking the wellbeing of society with a vision of a future that is based on the selling of our present. It does this by creating large communities of future interests that compete with the existing public structure instead of working with it. It fractures the role of the public and public goods through veneers of efficiency and responsible finance, thereby also laying the ground for the financialisation of care. A reinforced public and public financing remains key to securing our collective future.