Sunset for pensions

No politician dares suggest that depriving a chunk of the country of its retirement prospects is a f

The biggest debate in British politics in 2010 will be how to cut the size of government. With annual borrowing heading for £178bn in this fiscal year, whoever is in charge will have to wield the axe. One obvious target for the government and opposition is proving to be retirement. The consequences of removing pensions benefits, though painful, are felt later rather than sooner. But as we saw with Gordon Brown's dividend-tax raid on private pension funds in 1997, such measures can have hugely damaging effects.

Alistair Darling's December 2009 pre-Budget report was filled with pension cluster bombs. By far the most important was the decision to postpone implementation of New Labour's landmark "personal account" pensions reform, with a saving to the state of £2.3bn by 2014-2015, making it one of the largest identified cuts. Darling insisted on the delay despite a spirited fight by the Work and Pensions Secretary, Yvette Cooper.

The impending political battle over the costs of retirement was signalled by the Conservative shadow chancellor, George Osborne, in his October 2009 "austerity" speech to the Tory party conference in Manchester. Osborne was accused of betraying the elderly and failing to think through the consequences of raising the retirement age to 66 from 2016.

But the Tories were also recognising that, for much of Labour's 13 years in office, pensions have been an issue that dare not speak its name (though it has been at the core of Labour's value system since the Attlee government steered the National Insurance Act through the Commons in 1946). Over the first decade of New Labour, differences over pensions came to symbolise divisions between Tony Blair and Brown. Blair was a long-time advocate of pensions reform. But Brown saw any efforts to fiddle with state, public- or private-sector pensions as an intrusion on his territory at the Treasury.

The result was years of stalemate, bungled decision-making and the impression that no one really cared. It was only after heated meetings at N0 10 between Brown, the then pensions secretary, John Hutton, and Blair in 2006-2007, that agreement was reached on sweeping changes to retirement provision, based on the recommendations of the Blair-appointed Pensions Commission, led by Lord (Adair) Turner.

In an effort to phase out the need for widespread means testing, state pensions would be linked again to rises in average earnings from 2012 onwards. This would be paid for by raising the state pension age to 66 from 2026 (ten years later than the Tories), 67 in 2036 and 68 in 2046. All private-sector workers would be automatically enrolled in a new, government-organised scheme of "personal accounts" (just renamed the National Employment Savings Trust), similar to others in Australia and Sweden. This should have been operational in 2012.

It was the delayed implementation, if not destruction, of these plans that Darling sneaked through in December.

Deep in debt

The need to do something about the Budget deficit is clear: for every £4 the government will spend in the next financial year it will raise just £3 in taxes. As a result, borrowing in the current financial year will surge to 65 per cent of national output, the highest figure in peacetime (with the possible exception of a short period in the 1970s).

Without sharp rises in taxation and spending cuts, borrowing could rise to 78 per cent of GDP by 2014-2015. But these numbers tell only part of the story. Britain has enormous hidden liabilities that are not included in the Budget. Among the biggest of these burdens on future generations is the nation's unfunded pensions promises to employees in the public sector.

The number of state workers has surged under Labour as more than a million people have been added to the payroll.

The last published figures show that civil ser­vice pensions liabilities climbed 40 per cent - from £84.1bn to £119.4bn - in the three years to March 2008. However, if you count the total liability across government, including the NHS and education, the figure rockets to £750bn. Local government funds alone will have a deficit of £60bn next year, according to new data collected by the Liberal Democrats. Despite this, reform of public-sector pensions is one of the great unmentionables of the political debate. So far, no politician has dared suggest that depriving a large chunk of the country of retirement prospects is a fiscal necessity.

This, however, is precisely what has been happening in business. Britain's defined-salary pension scheme, not so long ago the best funded of all those in the western democracies, has been in decline ever since Labour came to office. The retreat is a product of several factors.

In 1997, Gordon Brown, in his first Budget, abolished the tax break for dividends invested in pension funds, removing an estimated £125bn of income. Extra regulations have also hugely increased the cost of running such schemes. Pile on the additional burdens of changing mortality as people live longer, and more than a decade of turbulent stock markets - culmin­ating in 2008's crash - and the gold-standard final-salary pension becomes an unbearable weight for many companies.

Generous package

It used to be said that the baby-boomer generation - with its inflation-proofed final-salary retirement plans - was the "pensions aristocracy". That may have been the case, but the most fortunate are now in the public sector, where many are in non-contributory plans that pay out inflation-proofed pensions at the age of 60.

Generous retirement arrangements for state employees were seen as compensation for lower wages. However, during the recession, average pay in the state sector has caught up with pay by private companies. In fact, this clash of reward structures, if not addressed, could damage social cohesion and the de facto contract between taxpayer and state.

The Confederation of British Industry has been among those leading the calls for reform. The employers' group proposes that the retirement age be raised to 65 for younger state workers. More realistic employer contributions should be deployed and mortality assumptions altered in line with practice in the private sector.

The Chancellor unveiled changes, aimed at capping public-sector pensions, in December. But with estimated cost savings of just £1bn, these barely scrape the surface. At the very least, public-sector retirement ages should move in step with those for state pensions, thereby cutting back the burden for future generations of taxpayers. However, a bolder solution would be to bring future public-sector employees under the umbrella of the "personal account" system, if it gets off the ground.

There is no reason why the government, setting an example to the private sector, should not contribute more than the minimum. Unfortunately, that is not going to happen. All too often, when it comes to pensions, obfuscation and complexity are preferred to bold thinking.

Alex Brummer is City editor of the Daily Mail

This article first appeared in the 25 January 2010 issue of the New Statesman, Afghanistan: Why we cannot win this war

Fox via YouTube
Show Hide image

Are smart toys spying on children?

If you thought stepping on a Lego was bad, consider the new ways in which toys can hurt and harm families.

In January 1999, the president of Tiger Electronics, Roger Shiffman, was forced to issue a statement clearing the name of the company’s hottest new toy. “Furby is not a spy,” he announced to the waiting world.

Shiffman was speaking out after America’s National Security Agency (NSA) banned the toy from its premises. The ban was its response to a playground rumour that Furbies could be taught to speak, and therefore could record and repeat human speech. “The NSA did not do their homework,” said Shiffman at the time.

But if America’s security agencies are still in the habit of banning toys that can record, spy, and store private information, then the list of contraband items must be getting exceptionally long. Nearly 18 years after TE were forced to deny Furby’s secret agent credentials, EU and US consumer watchdogs are filing complaints about a number of WiFi and Bluetooth connected interactive toys, also known as smart toys, which have hit the shelves. Equipped with microphones and an internet connection, many have the power to invade both children’s and adults’ private lives.

***

“We wanted a smart toy that could learn and grow with a child,” says JP Benini, the co-founder of the CogniToys “Dino”, an interactive WiFi-enabled plastic dinosaur that can hold conversations with children and answer their questions. Benini and his team won the 2014 Watson Mobile Developer Challenge, allowing them to use the question-answering software IBM Watson to develop the Dino. As such, unlike the “interactive” toys of the Nineties and Noughties, Dino doesn’t simply reiterate a host of pre-recorded stock phrases, but has real, organic conversations. “We grew it from something that was like a Siri for kids to something that was more conversational in nature.”

In order for this to work, Dino has a speaker in one nostril and a microphone in the other, and once a child presses the button on his belly, everything they say is processed by the internet-connected toy. The audio files are turned into statistical data and transcripts, which are then anonymised and encrypted. Most of this data is, in Benini’s words, “tossed out”, but his company, Elemental Path, which owns CogniToys, do store statistical data about a child, which they call “Play Data”. “We keep pieces from the interaction, not the full interaction itself,” he tells me.

“Play Data” are things like a child’s favourite colour or sport, which are used to make a profile of the child. This data is then available for the company to view, use, and pass on to third parties, and for parents to see on a “Parental Panel”. For example, if a child tells Dino their favourite colour is “red”, their mother or father will be able to see this on their app, and Elemental Path will be able to use this information to, Benini says, “make a better toy”.

Currently, the company has no plans to use the data with any external marketers, though it is becoming more and more common for smart toys to store and sell data about how they are played with. “This isn’t meant to be just another monitoring device that's using the information that it gathers to sell it back to its user,” says Benini.

Sometimes, however, Elemental Path does save, store, and use the raw audio files of what a child has said to the toy. “If the Dino is asked a question that it doesn’t know, we take that question and separate it from the actual child that’s asking it and it goes into this giant bucket of unresolved questions and we can analyse that over time,” says Benini. It is worth noting, however, that Amazon reviews of the toy claim it is frequently unable to answer questions, meaning there is potentially an abundance of audio saved, rather than it being an occasional occurrence.

CogniToys have a relatively transparent Privacy Policy on their website, and it is clear that Benini has considered privacy at length. He admits that the company has been back and forth about how much data to store, originally offering parents the opportunity to see full transcripts of what their child had been saying, until many fed back that they found this “creepy”. Dino is not the first smart toy to be criticised in this way.

Hello Barbie is the world’s first interactive Barbie doll, and when it was released by Mattel in 2015, it was met with scorn by parents’ rights groups and privacy campaigners. Like Dino, the doll holds conversations with children and stores data about them which it passes back to the parents, and articles expressing concerns about the toy featured on CNN, the Guardian, and the New York Times. Despite Dino’s similarities, however, Benini’s toy received almost no negative attention, while Hello Barbie won the Campaign for a Commercial-Free Childhood’s prize for worst toy of the year 2015.

“We were lucky with that one,” he says, “Like the whole story of the early bird gets the worm but the second worm doesn’t get eaten. Coming second on all of this allowed us to be prepared to address the privacy concerns in greater depth.”

Nonetheless, Dino is in many ways essentially the same as Hello Barbie. Both toys allow companies and parents to spy on children’s private playtimes, and while the former might seem more troubling, the latter is not without its problems. A feature on the Parental Panel of the Dino also allows parents to see the exact wording of questions children have asked about certain difficult topics, such as sex or bullying. In many ways, this is the modern equivalent of a parent reading their child's diary. 

“Giving parents the opportunity to side-step their basic responsibility of talking to, engaging with, encouraging and reassuring their child is a terrifying glimpse into a society where plastic dinosaurs rule and humans are little more than machines providing the babies for the reptile robots to nurture,” says Renate Samson, the chief executive of privacy campaign group Big Brother Watch. “We are used to technology providing convenience in our lives to the detriment of our privacy, but allowing your child to be taught, consoled and even told to meditate by a WiFi connected talking dinosaur really is a step in the wrong direction.”

***

Toy companies and parents are one thing, however, and to many it might seem trivial for a child’s privacy to be comprised in this way. Yet many smart toys are also vulnerable to hackers, meaning security and privacy are under threat in a much more direct way. Ken Munro, of Pen Test Partners, is an ethical hacker who exposed security flaws in the interactive smart toy “My Friend Cayla” by making her say, among other things, “Calm down or I will kick the shit out of you.”

“We just thought ‘Wow’, the opportunity to get a talking doll to swear was too good,” he says. “It was the kid in me. But there were deeper concerns.”

Munro explains that any device could connect to the doll over Bluetooth, provided it was in range, as the set-up didn’t require a pin or password. He also found issues with the encryption processes used by the company. “You can say anything to a child through the doll because there's no security,” he says. “That means you've got a device that can potentially be used to groom a child and that's really creepy.”

Pen Test Partners tells companies about the flaws they find with their products in a process they call “responsible disclosure”. Most of the time, companies are grateful for the information, and work through ways to fix the problem. Munro feels that Vivid Toy Group, the company behind Cayla, did a “poor job” at fixing the issue. “All they did was put one more step in the process of getting it to swear for us.”

It is one thing for a hacker to speak to a child through a toy and another for them to hear them. Early this year, a hack on baby monitors ignited such concerns. But any toy with speech recognition that is connected to the internet is also vulnerable to being hacked. The data that is stored about how children play with smart toys is also under threat, as Fisher Price found out this year when a security company managed to obtain the names, ages, birthdays, and genders of children who had played with its smart toys. In 2015, VTech also admitted that five million of its customers had their data breached in a hack.

“The idea that your child shares their playtime with a device which could potentially be hacked, leaving your child’s inane or maybe intimate and revealing questions exposed is profoundly worrying,” says Samson. Today, the US Electronic Privacy Information Center (EPIC) said in a statement that smart toys “pose an imminent and immediate threat to the safety and security of children in the United States”. 

Munro says big brands are usually great at tackling these issues, but warns about smaller, cheaper brands who have less to lose than companies like Disney or Fisher Price. “I’m not saying they get it right but if someone does find a problem they’ve got a huge incentive to get it right subsequently,” he says of larger companies. Thankfully, Munro says that he found Dino to be secure. “I would be happy for my kids to play with it,” he says. “We did find a couple of bugs but we had a chat with them and they’re a good bunch. They aren’t perfect but I think they’ve done a hell of a lot of a better job than some other smart toy vendors.”

Benini appears alert to security and the credibility it gives his company. “We took the security very, very seriously,” he says. “We were still building our systems whilst these horror stories were coming about so I already set pipelines and parameters in place. With a lot of devices out there it seems that security takes a backseat to the idea, which is really unfortunate when you’re inviting these devices into your home.”

As well as being wary of smaller brands, Munro advises that parents should look out for Bluetooth toys without a secure pairing process (ie. any device can pair with the toy if near enough), and to think twice about which toys you connect to your WiFi. He also advises to use unique passwords for toys and their corresponding apps.

“You might think ‘It's just a toy, so I can use the same password I put in everything else’ – dog’s name, football club, whatever – but actually if that ever got hacked you’d end up getting all your accounts that use that same password hacked,” he says.

Despite his security advice, Munro describes himself as “on the fence” about internet-connected smart toys as a whole. “Most internet of things devices can be hacked in one way or another,” he says. “I would urge caution.”

***

Is all of this legal? Companies might not be doing enough ethically to protect the privacy of children, but are they acting responsibly within the confines of the law?

Benini explains that Dino complies with the United States Children's Online Privacy Protection Act (COPPA) of which there is no real equivalent in the UK. COPPA says that companies must have parental permission to collect personal information over the internet about children under 13 years of age. “We’ve tried to go above and beyond the original layout of COPPA,” says Benini, when describing CogniToys transparent privacy documents. Parents give their consent for Elemental Path to collect their children’s data when they download the app that pairs with the toy.

Dino bears a striking similarity to Amazon Echo and Google Home, smart speakers that listen out for commands and questions in your home. Everything that is said to Amazon Echo is recorded and sent to the cloud, and an investigation by the Guardian earlier this year discovered that this does not comply with COPPA. We are therefore now in a strange position whereby many internet of things home devices are legally considered a threat to a child’s privacy, whereas toys with the same capabilities are not. This is an issue because many parents may not actually be aware that they are handing over their children’s data when installing a new toy.

As of today, EU consumer rights groups are also launching complaints against certain smart toys, claiming they breach the EU Unfair Contract Terms Directive and the EU Data Protection Directive, as well as potentially the Toy Safety Directive. Though smart toys may be better regulated in Europe, there are no signs that the problem is being tackled in the UK. 

At a time when the UK government are implementing unprecedented measures to survey its citizens on the internet and Jeremy Hunt wants companies to scour teens’ phones for sexts, it seems unlikely that any legislation will be enacted that protects children’s privacy from being violated by toy companies. Indeed, many internet of things companies – including Elemental Path – admit they will hand over your data to government and law enforcement officials when asked.

***

As smart toys develop, the threat they pose to children only becomes greater. The inclusion of sensors and cameras means even more data can be collected about children, and their privacy can and will be compromised in worrying ways.

Companies, hackers, and even parents are denying children their individual right to privacy and private play. “Children need to feel that they can play in their own place,” says Samson. It is worrying to set a precedent where children get used to surveillance early on. All of this is to say nothing of the educational problems of owning a toy that will tell you (rather than teach you) how to spell “space” and figure out “5+8”.

In a 1999 episode of The Simpsons, “Grift of the Magi”, a toy company takes over Springfield Elementary and spies on children in order to create the perfect toy, Funzo. It is designed to destroy all other toys, just in time for Christmas. Many at the time criticised the plot for being absurd. Like the show's prediction of President Trump, however, it seems that we are living in a world where satire slowly becomes reality.

Amelia Tait is a technology and digital culture writer at the New Statesman.