The Politics of Choice in the Reconstitution of Retirement Risks

Transcription

1 Unfortunately, the paper I am working on is not suitable for being uploaded. Hence only these presentation sheets. Those who would like to read the paper when it is more finished, please send me an . The Politics of Choice in the Reconstitution of Retirement Risks Individualisation and marketisation of pension provision Johan De Deken Department of Sociology AISSR AIAS J.J.DeDeken@uva.nl ECPR General Conference Prague 7-10 September 2016 Panel P187 Institutional Change and European Social Policy Reform Redistribution in Collective Pension Provision Two ideal typical models: all pensioners should receive the same pension Beveridgean ideal of flat rate pension levels of individual entitlements mirror relative income position that pensioners occupied during active years Bismarckian ideal of relative status over biographical time slices Dynamic or indexed Pensions pensioners allowed to partake in the economic gains made by the presently active cohorts by regular adjustments of current pensions to real wages 1

2 Redistribution made possible by limiting choice: solidairity & compulsion Defined Benefit logic PAYG finance Principles were realised both in unfunded social insurance and (partially) funded plans (extra funding) Macro and micro costs and risks of ageing were collectively born by either the citizenry of the nation state ( Beveridge ); active population and their employers; or status-based universes of solidarity ( Bismarck ) Privatisation: marketisation and individualisation Responsibility in providing: initiating organising governing retreat of the state or changing role of state (regulatory) Exit from statutory programs: relieves affluent winners from participating in solidaristic redistribution Transfer of administration: from unitary non-competitive to fragmented in competitive market Financialisation of risks: increasing role of financial motives, financial markets, financial actors and financial institutions 2

3 Is private more sustainable? Private commercial schemes can reduce expenditure for retirement when they succeed in excluding significant sections of the population from entitlement to a pension with a secondtier function provision of goods and services through markets involves an elaborate procedure of creating barriers of access so we cannot get them without payment (Colin Crouch Post Democracy) Has to offset increased transaction costs and leakage of residual reward for owners of private providers Retrenchment and privatisation Promise of compensating retrenchment of public pensions by promoting funded second and third pillar pensions Privatised systems more fragment and more convenient for blame avoidance Claim of superior financial sustainability of funded strategy based on equity finance worked well during the stock market boom of 1990s 3

4 Pension reforms since the 1990s Partial retreat of state and employers in shouldering burdens of ageing society and financial instability Erosion of dynamic DB elements in (quasi) public pensions tampering with indexation of benefits tightening entitlement conditions (making social insurance less social ex. NDC reforms) reducing replacement rates to reverse crowding out Compensating pension retrenchment by increasing choice options Introduction of choice options to legitimise individualisation and marketisation of pension provision Individual choice and individual responsibility makes government and employers less responsible for inadequacy of disappointing pension To prevent privatisation strategy to backfire (increase in pensioner poverty and load on means-tested benefits), some governments also introduced default options, auto enrolment mechanisms and stricter regulation of the pensions industry 4

5 Pillars and tiers and varieties in choice architecture Pension Pillars Pension Tiers Third Tier topping up Second Tier income maitenance First Tier poverty prevention 1. Public statutory (government) 2. Occupational social partners or employers 3. Personal individual Who can choose when, how and about what? Who? employees, employers or social partners When? accumulation phase or distribution phase How? exit or voice opting out of the collectivity to conclude individual arrangement or having a (stronger) say in how these arrangements are shaped and governed About what? pension contract or investment of savings Dealing with non-choosers: provisions for those who do not (want) to choose (actively) default options Measures to prevent adverse consequences of choice regulating and nudging; insolvency protection; annuitisation 5

6 About what during accumulation phase? Pension contract contribution levels, accrual levels, retirement age, indexation of pension accruals, average contribution rates/entitlement, coverage during periods of nonemployment due to sickness/disability, parental leave or unemployment, survival protection Investment of pension savings which assets and what criteria (risks, returns and ethics) About what in distribution phase? Benefit design Annuitisation (fixed or variable) Market-based with or without regulation (ex. unisex rates) State provided Lump sum Planned withdrawal Compensation for fluctuations in financial markets Survivor protection? 6

7 Consequences of archicture costs: transaction, switching administrative myopia and bounded rationality opportunism adverse selection solidarity or individualisation of risk future adequacy non choice Five case studies with focus on Employee choice through exit and DC Sweden: premium pension and negotiated plans Australia: superannuation pension United Kingdom: opting ourt of SERPS, automatic enrolment in NEST Germany: Riester Rente, Entgeltumwandlung and reinsurance by the PSV Employer choice through exit and DB Finland: Työntekijän eläkelaki (TyEL) 7

8 The Swedish case Pillars 1. Public statutory 2. Occupational social partners or employers 3. Personal individual Tiers Third Tier topping up Second Tier income maitenance Premiepension Inkomstpension ITP & SAF-LO avtal PA03 & KAP-KL Life insurances First Tier Poverty prevention Garantipension Sweden s Premiepension (1) complete individualisation of risks almost no solidarity (except for unisex annuitisation rates during distribution phase) no protection against insolvency clearing house model prevents adverse selction and reduces transaction costs Strict regulation of reporting and fee structure Too much choice (700) and very few make active choice (less only 1 out of 10) 8

9 Sweden s Premiepension (2) publicly administered default option = public fund public annuitisation (can be gradual and variable) relative small part of total pension package is at stake: less than 14% of earnings-related pension (but if occupational plans included it is more than one third though more organised choice in occupational plans) flexible retirement age, but at a cost The Finish case Tiers Third Tier topping up Second Tier income maitenance First Tier Poverty prevention 1. Public statutory Pillars 2. Occupational social partners or employers TyEL KvTEL VEL YEL - MYEL Universal National Pension 3. Personal individual Life insurances 9

10 TyEL no choice in the pension agreement but significant employer choice in investment via exit organised competition between PICs on the basis of client bonuses no risk for employee: PAYG-funding second tier hybrid (funding about one fifth of earnings-related pension) insolvency protection through extensive regulation of investment and solvability and through a system of joint liability of PICs and temporary increased contributions Less regulated cases Australia: mandated DC model without annuitisation UK: from hesitant statutory earnings related pension over voluntary DB and voluntary DC to nudged DC of NEST - with compulsory but competitive disfunctional annuity market (recent decision to abolish obligation to annuitise) Germany: voluntary third pillar scheme with second tier function (compensate for retrenchment of statutory schemes), lightly regulated with poor performance and excessive charges 10

11 Non choosers and varieties default option Sweden: accumulation phase: public default fund: AP7 Såfa distribution phase: public PPM sole provider of compulsory annuities Australia: accumulation phase: default private funds with so-called low risk balanced portfolio of 77% growth assets and 23% defensive investments distribution phase: unregulated and no compulsory annuitisation United Kindom: accumulation phase: NEST, a non departmental public body operating at arms length of the government as industry standard (comparatively low administration charges: 0.3% compared to 0.5% to 1.5%) and life course investment strategy distribution phase: occupational schemes can negotiate annuity rate, but no obligation to accept this and possibly to opt for open market option Germany: no obligation to enrol hence no default 11