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 Belgium: wide coverage, low benefits Dalila Ghailani Brussels, 22 November 2016

2 Plan OW in Belgium: minor importance compared to public welfare Occupational pensions: widespread but weakly funded Occupational unemployment protection: Belgium as a specific case Conclusions

3 OW in BE: minor importance compared to public welfare Definition of OW Mainly in health care insurance and supplementary pensions OW designed as a supplement to public welfare programmes Voluntary private expenditure on social protection: 2.1% of GDP vs 29.4% for public expenditure But the share of VPE has risen since 1990

4 Key figures : social expenditure as a percentage of GDP Source Branch dif % dif. /1990 Public Mandatory private Voluntary private Old age % Survivors % Incapacity related % Health % Family % Active labour market programmes % Unemployment % Housing Other social policy areas % Total % Old age Survivors Incapacity related Family Other social policy areas Total Old age % Incapacity related % Health % Other social policy areas % Total % Source: OECD 2011.

5 Occupational pensions: widespread but weakly funded Characteristics of the Belgian first pillar of pensions High minimum benefits and low maximum benefits Wage-earners are offered 60/75 % of their average past earnings a substantial degree of redistribution: no upper earnings limit for contribution, but wages taken into account in the calculation of benefits capped at a low level (53, euros in 2015) income-replacement function only applies to private sector workers with a low to median income better-off workers cannot maintain their income position in retirement a supplementary pension may help to increase the replacement ratio

6 DC /DB Plans: average net replacement ratio based on salary Salary (euros/year) Net replacement ratio statutory pension Net replacement ratio supplementary pension Net replacement ratio Statutory and supplementary pension DB DC DB DC 0 30,000 71% 6% 5% 76% 76% 30,000 40,000 69% 9% 7% 78% 76% 40,000 50,000 67% 11% 9% 78% 76% 50,000 65,000 60% 17% 12% 77% 72% 65, ,000 47% 26% 17% 73% 64% 100,000 and more 30% 38% 26% 68% 56% Source: Pension Reforms Committee , 2014.

7 The origins of occupational pensions In the 1980s, policy-makers reduced the generosity of statutory pensions in order to contain increasing costs resulting from PAYG systems and demographic ageing, while encouraging the development of supplementary pensions. Trade unions were sceptical about increasing the role of occupational schemes fully controlled by employers unable to stop the cutback in public pensions. 1992: broad discussion on the future of the pension system and pension privatization back on the agenda: Occupational Pension Act 1995 Central role of the metalworking industries: collective agreement creating a sector-wide scheme for blue-collar workers introducing elements of solidarity and recognizing the role of social partnership in the expansion of supplementary pensions (1999). Fabrimetal requested changes in existing regulations over occupational plans in order to implement their specific design: enacted in the Vandenbroucke Law 2003.

8 Coverage Key traits 75% of workers, mainly in five big sectors 45 sectors (1,200,000 active workers) Relative increase in the coverage rate after the VDB Law primarily benefited blue-collar workers Unequal distribution at sectoral level: majority of blue-collar workers (70%), mostly males (63%) level of coverage directly linked to: level of education, type of contract, working time arrangement, sector, size of the company no sectoral pensions in sectors of distribution, business-to-business services and textiles contract civil servants and atypical workers remain excluded differences still remain between managers, white collar workers and blue workers

9 Funding and benefits Financial reserves amounted to some 70 billion euros in 2012 (18% of the GDP) sectoral schemes: normal contribution rate is 1% to 1.75% of gross yearly wages Contributions to company pensions: on average 1.35% for blue-collar workers and 3.20% for white-collar workers (5.02% between ) Minimum guaranteed return of 3.25% /3.75% on employees' /employers' contributions Benefits mostly cashed in as paid-up capital in a single transaction (72%). Payment of annuities legally possible but rare. Administration 75% of sectoral pension schemes are managed by an insurance group, covering 60% of workers Role of social partners: joint management board vs monitoring committee Limited influence of stakeholders

10 Occupational unemployment protection: Belgium as a specific case Of less importance Only statutory unemployment insurance, no supplementary occupational scheme High level of protection and full involvement of SP: compatible with the lack of occupational schemes But temporary unemployment for economic reasons (TU) is a hybrid scheme TU = part of the Belgian unemployment protection system since 1944 for blue collar workers TU for white-collars: from a temporary anti-crisis measure to a permanent measure called 'economic unemployment for employees of companies in difficulties

11 Key traits of TU TU scheme combines general social welfare with some occupational features TU is part of the social protection system, access to TU is statutory (set by law) and open to all workers TU concerns only workers in companies initiating a specific procedure for access to TU; unemployment benefit topped up with a daily lump sum paid by employers and set by a CA; access to TU subject to specific social dialogue obligations Hybrid status of workers: still employed, they interact with the NEO but form a specific group among the unemployed: no obligation to register as job seeker, no activation obligations but access to training measures. Unequal distribution among workers TU scheme overwhelmingly used for blue-collar workers Mainly in the manufacturing or construction industry but also in some service sectors Strong gender imbalance

12 Conclusions Different evolution of occupational programmes in the two policy areas as a consequence of different institutional landscapes and actors strategies No room for supplementary unemployment protection: SP closely involved in the general scheme and support it By contrast, several elements support the expansion of occupationnal pensions: first pillar guarantees status-maintenance in old age only for workers with earnings up to the median corporatist system of wage bargaining and high trade union density Yet occupational pensions are meagre: 75 % of wage earners are covered but only by low-level schemes, producing inadequate supplementary benefits

13 Because of wage moderation, allocation of the resources necessary for a well-funded second pillar would result in giving up wage growth or even cutting real wages. Most Belgians rely then upon alternative means to provide for their old age: widespread full home ownership, bank deposits, state bonds, and savings accounts. Actual debate on pensions sheds light on the divergent interests of the actors involved and the problems for further development of OW in Belgium Inadequacy of supplementary pensions Fiscal advantages reduced Performance requirement challenged Announced review of the taxation of annuities and lump sums to create a more robust market for annuity products

14 Divergent views of social partners on the role of occupational pensions Expansion of the second pillar is not seen as a priority for trade unions: its increased importance illustrates the crisis of solidarity within our welfare system and reinforces inequalities it deprives the social security system and state budgets of resources that could be used to develop more solidarity-based social policies. Trade unionists are more concerned about issues related to an increased retirement age and early retirement Employers prefer a greater prevalence of third pillar schemes, in that they consider occupational pensions to be heavily regulated and to involve costs for them.