Unemployment and Pensions Protection in Europe: the Changing Role of Social Partners

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1 Unemployment and Pensions Protection in Europe: the Changing Role of Social Partners Occupational Welfare in the United Kingdom: From Skill Retention Tool to Social Protection Only for Legitimate Social Risks Marek Naczyk Brussels, 22 November 2016

2 Large development of OW in liberal UK? Except for the NHS, not a very generous welfare state To be sure, occupational provision well entrenched: Voluntary private expenditure, 2011 = 5.3% of UK GDP vs. 2.2% OECD average (OECD 2013) Yet huge variation in significance of OW across social risks: Old-age pensions vs. the rest

3 OW s changing institutional designs and functions Late 19 th century: rise of the friendly societies From early 20 th century: expansion of OW mainly as a result of unilateral decisions made by employers retaining skilled workers and pacifying labour Trade unions reactive rather than proactive Fiscal welfare = driver of OW from inter-war period, but direct state regulation of OW (now tool of social protection) only from 1960s/70s

4 Occupational pensions: heyday, decline and revival Come on top of flat-rate basic state pension and, from late 1950s until recently, were contracted out of additional state earningsrelated pension schemes

5 Tier 1 Public PAYG Mandatory Contributory flatrate basic state pension Traditional structure of UK pension system

6 Thatcher government: BSP uprated in line with prices instead earnings Pensions Act 2007: BSP uprated again in line with earnings Source: DWP 2015

7 Traditional structure of UK pension system Tier 1 Tier 2 Tier 3 Public PAYG Mandatory Contributory flatrate basic state pension Public PAYG Mandatory Contributory earnings-related GRB/SERPS/S2P Typically Contracted out Private fully-funded Voluntary Occupational schemes

8 Occupational pensions: heyday and decline Come on top of flat-rate basic state pension and, from late 1950s until recently, were contracted out of additional state earnings-related pension schemes OW covered two-thirds of workforce by early 1970s Decline of defined-benefit schemes from Thatcher era: state regulation + introduction of personal pensions

9 Traditional structure of UK pension system Tier 1 Public PAYG Mandatory Contributory flatrate basic state pension Tier 2 Public PAYG Mandatory Contributory earnings-related GRB/SERPS/S2 P Typically Contracted out Tier 3 Private fullyfunded Voluntary Opt out Occupational Opt out schemes Tier 4 Private fullyfunded Voluntary Personal pensions

10 Traditional structure of UK pension system

11 The revival of occupational retirement provision Between 2012 and 2018 (result of Pensions Act 2008), gradual introduction of auto-enrolment of workers in workplace pension schemes min. contrib. rate of 8% (with 3 percentage points paid by employer) Mechanism of contracting out suppressed More generous basic ( new ) state pension

12 Traditional structure of UK pension system Tier 1 Public PAYG Mandatory Contributory flatrate basic state pension Tier 2 Public PAYG Mandatory Contributory earnings-related GRB/SERPS/S2 P Typically Contracted out Tier 3 Private fullyfunded Voluntary Opt out Occupational Opt out schemes Tier 4 Private fullyfunded Voluntary Personal pensions

13 New structure of UK pension system Tier 1 Public PAYG Mandatory Contributory flatrate new state pension per week instead of per week with old basic state pension Tier 2 Private fully-funded Automatic enrolment with possibility to opt out Workplace (occupational, group personal, group stakeholder) pension schemes Min. contrib. rate of 8% of gross salary Tier 3 Private fully-funded Voluntary Personal pensions and other instruments of individual savings

15 Role of trade unions in governance Traditionally, trustees in defined-benefit schemes were appointed by employers Mandatory to have one third of member-nominated trustees after Pensions Act 1995 (cf. Maxwell scandal) Rise of defined-contribution schemes means fewer schemes are trust-based low union representation But, to help auto-enrolment, creation of low-cost National Employment Savings Trust (NEST)

16 Occupational Unemployment- Related Provision? Investigated two forms: enhanced redundancy pay and short-time working arrangements While quite prevalent during inter-war and post-war period, stagnant since the 1970s No reliable data on and level of benefits Fiscal support: No state support for short-time working except for ProAct ( ) scheme in Wales GBP 30,000 ceiling on tax exemptions on (statutory and enhanced) redundancy pay not revised since 1988

17 Conclusion No good occupational provision without good state provision: Pensions: parallel decline of state and occupational provision before reversal in the late 2000s Unemployment: retrenchment of state unemployment benefits has not led to development of occupational provision Different challenges in two areas: Unemployment: improving legitimacy of state and occupational provision Pensions: ensuring high-quality occupational provision for all social groups

United Kingdom. Qualifying conditions. Key indicators. United Kingdom: Pension system in 2012

United Kingdom. Qualifying conditions. Key indicators. United Kingdom: Pension system in 2012 United Kingdom United Kingdom: Pension system in 212 The public scheme has two tiers (a flat-rate basic pension and an earningsrelated additional pension), which are complemented by a large voluntary private