Swindling of people's money through Insurance and Pension "Reforms"
The second round of liberalisation measures came on October 4, with the announcement by the UPA government of hikes in the ceiling on foreign equity ownership from 26 to 49 per cent in the insurance sector and from nil to 49 percent in the pension fund industry. The hike in the FDI ceiling for insurance companies was accompanied by other “insurance reforms” that will allow the public sector General Insurance Corporation (GIC) to raise capital from the market to meet future requirements, subject to a minimum 51 per cent holding by the government and allowing foreign insurers to conduct reinsurance business in India.
Earlier, the cabinet had approved the Pension Fund Regulatory and Development Authority (PFRDA) Bill to be introduced in Parliament. Through this Bill, the bourgeoisie wants access to the big pool of savings which has so far been under the control of the state. The Bill aims to expand pension coverage, and convert the funds into sources of finance for monopoly capitalist ventures, i.e., a cheap source of finance for the capitalist class.
These measures had been under discussion over many months and there has been massive opposition to the impending reforms. Employees of the Insurance Sector and workers across all industrial sectors have been opposing them because they perceive that their future security is under threat. Despite this and contrary to the recommendations of the Parliamentary Standing Committee on the issue, the government is going ahead with this.
When the government made the earlier announcement of FDI in retail and the aviation sectors, the justification given was that all these measures would bring much needed foreign capital into the country and create thousands of jobs. This time around, with the increase in FDI cap in insurance and pension sectors, the UPA government justifies it as measures that will increase competition and therefore bring in more efficiency and that it will increase the coverage of insurance and pension. This is called “financial inclusion” by the bourgeoisie and claimed to be in the interest of the people.
The raising of cap in FDI in insurance and pension sectors are part of the overall move to privatize these sectors. Barriers to entry of private capital, both Indian and foreign, are being gradually reduced using all kinds of justifications of efficiency and expanding the coverage. The real aim of the bourgeoisie is to apply these massive funds, which have accumulated from the earning and savings of working people to speculation in the financial market. This is nothing but outright swindling.
Till recently, in India, pension and insurance were in the public sector and highly regulated. The funds were secure and there were moderate earnings for the worker on the accumulation of his savings in a pension fund or Insurance scheme. The privatization of pension funds and bringing FDI into both these sectors is being pushed on the pretext that pensioners and insured should not have to be satisfied with fixed returns on their contributions to their pension or the premium they pay for their insurance. By choosing to allow investments of their future receipts in various financial instruments in the financial markets, they can make higher returns. But what is hidden is that investing in financial markets is subject to massive risks and may end up with the working people losing everything that they have carefully saved. At the same time, the cost of premiums for insurance will go up. The premium in many insurance policies shot up by almost 40% in India with the earlier round of liberalisation of the insurance sector.
The experience of the US, UK and other countries where there has been deregulation and privatization of these sectors shows this very clearly. In the US, growing speculation by State, City and private pension funds since 2006 which has been made possible by the Federal Pension Act of 2006 and financial deregulation have threatened many of these funds with being reduced to bankruptcy (see Box for example of AIG), while in other cases they have gone bankrupt. (see Box for example of Enron).
The Enron Story
Thousands of employees, including former employees, lost their life savings since the bankruptcy of the gas and trading giant Enron in December 2001, while records show that many of Enron’s top executives made tens, and some, hundreds of millions of dollars during preceding years, while concealing the true financial state of the company. Enron filed for bankruptcy protection December 2001, only a few weeks after admitting that it had overstated earnings by more than $586 million since 1997. Millions of workers had bought into the pension plan of the company, whereby their savings for retirement were invested in the company stock. Workers were required to keep the money invested in company stock for a set number of years or until they reach a certain age. Therefore thousands of employees were prevented, under this plan, from selling their stock even as they saw the company going towards bankruptcy. Later on these employees got only one-third of their future benefits.Lesson to be drawn is that private pension funds will not guarantee the worker a return; it is the government’s responsibility to do that. When pension funds are invested in the stock market there is no security against potential collapses of the particular stock or even the stock market.
For the working people, these reforms mean risking their future. They have nothing to gain. The promised “higher returns” are not guaranteed. Their hard earned savings which they have used to buy insurance premiums and their contributions to pension funds will be subject to risks; and if the risks go bad, they will have to end up bearing the damages. The working people must step up their opposition to the bourgeois agenda of liberalisation and privatization and fight for an alternative agenda, in the interests of all those who toil and deserve a secure present and future. They must demand of the government that privatization of pension funds and insurance must be stopped and reversed and that their future claims must be protected for inflation. Private profiteers must not be allowed to swindle them of their just claims.
The AIG Story
The American International Group (AIG) is a giant insurance company that almost became bankrupt because in its greed to make more money it made risky investments that became bad debts. There was real danger to pension plans which would have been forced to write down their AIG-related assets, resulting in significant losses to the pensioners. Millions of Americans who entrust their saving in money market mutual funds were at risk of losing all their savings.The US government bailed out the company to save it from collapse, because it was one of those corporations which were “too big to fail”; it would have disastrous consequences for the bourgeoisie. Such bail outs are paid for by millions of ordinary American tax payers.