Occupational Pension Provision Research Articles

Financialisation meets collectivisation: occupational pensions in Denmark, the Netherlands and Sweden

ABSTRACTThis paper analyses three cases where unions and employers have embraced financialisation in occupational pension provision. The widespread use of funded occupational pensions in Denmark, the Netherlands and Sweden is rooted in social partner agreement that collectively organised, capital funded pensions can be harnessed to generate secure income. External funding (legal separation of pension reserves from the employer) and administration were key elements in strategies to provide secure occupational pensions. The introduction of funded occupational pensions took place in the context of meagre and/or incomplete statutory provision and before the expansion of generous basic pension coverage starting in the 1930s. This sequencing had a ‘crowding in’ effect, because well-paid workers sought collective solutions to their pension gap. Over time, these arrangements came to encompass nearly the entire labour market. Unions and employers have developed distinctive strategies for limiting investment risks, limiting the involvement of private financial actors, and ensuring that the interests of plan participants and investment managers are aligned.

Generational Pension Plan Designs

We propose a generational plan for the occupational pension provision in which people from the same generation are pooled in a generational fund. Each fund can set its own policies independently. This plan provides the benefits of differentiation missing in the prevailing collective plan and the benefits of centralized management and risk sharing which are missing in the individual plan. We compare the generational plan and the collective plan by imposing the same investment and contribution rates, find that the generational plan provides a higher welfare to the new entrants. This better performanceis driven by the fact that the generational plan precludes any a-priori transfers while allowing for risk sharing via time diversification of long-term investment.

Personal Pensions with Risk Sharing. Affordable, Adequate and Stable Private Pensions in Europe

Private pension provision faces the challenging task of providing stable income streams during retirement. The challenge has increased markedly in the last decades due to volatile financial markets, falling interest rates and the withdrawal of employers and external insurers as risk bearers of systematic financial and longevity risks. Partly because of these developments, policyholders desire pensions tailored to their individual needs. This paper proposes a new type of pension: the Personal Pension with Risk sharing (PPR). By unbundling and valuing the investment, (dis)saving, insurance and risk‐sharing functions of pensions, PPRs allow risk management and (dis)saving to be customized to the specific features of heterogeneous individuals. Moreover, unlike variable annuities, PPRs allow investment risks to be combined with longevity insurance without giving rise to high year‐on‐year volatility in consumption streams or opaque and rigid valuation and smoothing rules. The unbundling of functions in the PPR also deepens the internal markets for financial and insurance products while at the same time accommodating the diverse traditions of countries in terms of occupational pension provision. Finally, the PPR reconciles financial, fiscal and macroeconomic stability with growth by increasing the supply of long‐term risk‐bearing and illiquid capital, complementing public retirement provision, reducing the interest‐rate sensitivity of pensions and smoothing shocks.

Las nociones de trabajo informal y trabajo precario en el análisis de la calidad del empleo en Colombia

In this article the concept of informality in Colombia is evaluated as to its accuracy to provide relevant information on job quality; in the light of multidimensional concepts of precarious employment and job security. The results show that the definition and measurement of informal employment taking place in Colombia remain insufficient to reveal the difficulties workers face in terms of precariousness. This paper proposes a conceptual and operational adaptation of precariousness. The results suggest that the main deficits on job security faced by the Colombian work force are in collective participation, protection against occupational hazards, employee benefits and pension provision. This study concludes that informality does not reflect the wide diversity of precarious work in Colombia, as the latter crosses sector and occupational boundaries of the formal-informal, as recently suggested by the academic debate.

The 'Defined Ambition' Pension Plan: A Dutch Interpretation

As in many other countries, recent developments in demographics and financial markets are having a serious impact on pension systems and contracts in the Netherlands. For example, people living longer and being in good health is a major joint achievement of our welfare states and of medical science. However, these achievements demand a new approach to pension provision when tackling both longevity and aging societies. Traditional occupational DB pension provision has become too expensive for plan sponsors, and new solutions need to be found. On top of these trends we see an increasing individualization in European societies: people no longer participate in (mandatory) collective systems for the sake of solidarity alone; there needs to be a benefit for all. Sharing comparable risks at fair prices and costs has historically been well accepted, but redistribution of welfare in the name of inter-generational solidarity brings more discussion to the table. This article describes a new Dutch pension contract designed to address these challenges.

REMAKING RETIREMENT INVESTORS

Summoned up within the defined-contribution (DC) plans that now predominate in the UK and USA, the financial subject of the retirement investor is identified by behavioural economics as the crucial problem to be solved in present-day occupational pension provision. Interventions are being made that: promote individual participation in plans through auto-enrolment techniques; increase the rate at which individuals make tax-favoured payments into plans through contribution escalator schemes; and cater for the decision-making and risk management deficiencies of individuals by providing default option funds with in-built ‘life-style’ and ‘target-date’ investment strategies. After Deleuze and Foucault, we argue that this ‘behavioural revolution’ is a rearticulation of the heterogeneous elements which, in relation, produce the dispositif (apparatus) of DC plans as a distributed form of agency that places the retirement investor at its centre. Behavioural economics is shown to continue the inherently incomplete remaking of retirement investors within DC plans, necessarily precarious financial subjects who face the highly uncertain prospect that returns on investment after fees will be sufficient to meet their expectations of security in old age.

But is it ‘Fair'? The UK Coalition Government, ‘Fairness’ and the ‘Reform’ of Public Sector Pensions

AbstractThe article analyses arguments for reform of public sector pension schemes by the UK Coalition government on the grounds that existing provision is ‘unfair’. Three dimensions of ‘fairness’ are discussed. That between public and private sector provision; between the costs to public sector employees and other taxpayers; and between members of public sector schemes. The article argues that there are serious weaknesses in the Coalition position on each of these dimensions of ‘fairness’. It suggests that these weaknesses are rooted in the discussion of public sector pensions in isolation from the overall pattern of occupational pension provision in the UK and that a more satisfactory analysis requires reference to principles of distributive justice.

Explaining Europeans' preferences for pension provision

This paper analyses which factors are most important for explaining why people in fifteen European countries prefer either public, occupational or private pension provision. We make a distinction between personal characteristics such as age, gender and occupation, nationality and the actual, current kind of pension provision that respondents have. Using a large European survey, we find that although all three types of variables are important, the current pension provision and nation-specific effects have a much stronger effect than personal characteristics.

Rules for the Rich? Contemporary Trends in Executive Pensions

Both the UK and the USA have long-established employer-based welfare systems providing a range of benefits, of which one of the most significant has been the occupational pension. Over recent years, these pensions have come under pressure, which has manifested itself in a change in the form of provision from defined benefit (DB) to defined contribution (DC) schemes. However this shift has not been universally applied, as there has been differential treatment within the private sector between senior executives and the rest of the workforce. The aim of this paper is to explore this differential treatment using illustrative material principally from the UK but supplemented with additional material on the USA. The paper is divided into three parts: the first outlines the recent changes to private sector occupational pension provision; the second discusses the pension provision for senior executives (namely, board members); and the final section discusses the broad trends outlined in the first two sections. It also explores explanations of these trends and their implications for changing conceptions of the role of the corporation as a provider of ‘occupational welfare’.

What determines supply and demand for occupational pensions in Germany?

AbstractDemographic change causes an undersupply of financial old age benefits within the statutory pay-as-you-go pension system in Germany. Therefore, the provision of occupational as well as private pensions has to be enhanced. However, there seems to be an undersupply of occupational pension provision particularly in small and medium sized enterprises (SMEs). Using survey data of the German Socio-Economic Panel (GSOEP) and the German SAVE survey, the present paper studies econometrically the determinants of occupational pension provision in Germany. It shows that occupational pensions depend not only on supply-side factors such as firm size and industry, but also on demand-side factors such as individual sociodemo-graphic attributes and people's savings motives.

Class, gender and chance: the social division of welfare and occupational pensions in the United Kingdom

ABSTRACTThe social division of welfare literature emphasises the extent to which occupational-pension provision is distributed on the basis of class and gender. As most previous commentators have at least implicitly recognised, however, a significant proportion of less advantaged people are covered. This paper argues that the patterns of access and their distributional consequences must be considered more systematically, and that in this context, the diversity of employers' pension schemes are investigated. When this is done, it emerges that in the United Kingdom, the spread of occupational provision beyond the most privileged workers means that some vulnerable individuals avoid poverty in retirement. At the same time, however, the main determinant of which less advantaged people are covered and which not is chance. While class and gender are important predictors of who receives occupational pensions, access for the disadvantaged arises mainly as an accident of an employment decision made for reasons unrelated to savings or pensions criteria. This paper argues that the implication is that unsustainable justice-based arguments are currently used by policy makers to sanction the current distribution of UK pension incomes. The paper concludes by discussing the implications of the findings for the appropriateness of recent UK policy proposals and for international debates about pension reform.

What Determines the Demand for Occupational Pensions in Germany?

Demographic change causes an undersupply of financial old age benefits within the statutory pay-as-you-go pension system in Germany. Therefore, the provision of occupational as well as private pensions has to be enhanced. However, there seems to be an undersupply of occupational pension provision particularly in small and medium sized enterprises (SMEs). Using survey data of the German Socio-Economic Panel (GSOEP) and the German SAVE survey, the present paper studies econometrically the determinants of occupational pension provision in Germany. It shows that occupational pensions depend not only on supply-side factors such as firm size and industry, but also on demand-side factors such as individual socio-demographic attributes and people's savings motives.

Do Women Teachers Get a Fair Deal? An Assessment of Teachers' Pensions

There has been considerable debate about the future of pension provision over recent years and, in particular, the precarious position of many female pensioners. However, scant attention has been given to women contributing to occupational pensions despite gender differences in levels of accumulation. This article uses evidence from interviews with twenty retired female teachers to outline the difficulties women in the teaching profession have faced in building up occupational pension entitlements. Finally it highlights that pensions research needs to consider females with access to occupational pension provision to understand the situation of pensioners with a minimal pension income in retirement.

Pyrrhic victory? The unintended consequence of the Pensions Act 2004

The UK's 2004 Pensions Act is a far-reaching piece of legislation, with significant implications for the occupational pensions marketplace. The Act is intended to improve the governance of pension schemes and increase the security of the members’ accrued benefits. Our research, however, suggests that it will have serious and adverse unintended consequences. The most significant of these is to undermine occupational pension provision by placing an increased burden on sponsoring employers, whose involvement in pension provision is on a voluntary basis.

PYRRHIC VICTORY? THE UNINTENDED CONSEQUENCE OF THE PENSIONS ACT 2004

The UK's 2004 Pensions Act is a far‐reaching piece of legislation, with significant implications for the occupational pensions marketplace. The Act is intended to improve the governance of pension schemes and increase the security of the members’ accrued benefits. However, our research suggests that it will have serious and adverse unintended consequences. The most significant of these will be to undermine occupational pension provision by placing an increased burden on sponsoring employers, whose involvement in pension provision is on a voluntary basis.

When Do Benevolent Capitalists Change Their Mind? Explaining the Retrenchment of Defined-benefit Pensions in Britain

This paper explores the politics of welfare retrenchment, but differs from much of the current literature in this area by focusing not on the decisions of politicians but those of private sector employers. In countries with a large private welfare sector, employers are major social policy players with a significant influence on the generosity of welfare provision, but the rationale behind their actions is not well understood. To explore these issues, a case study is used of the recent fundamental change in UK occupational pension provision, involving a rapid shift from defined-benefit to defined-contribution pensions. The paper shows by means of a micro-simulation of the relative performance of defined-benefit, defined-contribution and state pensions that this shift represents a significant retrenchment. It suggests, using historical material, interview data and insights from behavioural economics, that existing explanations for this change, while valuable, have important gaps because they are based on too narrow a conceptualization of business motives. In this regard, the paper highlights the importance of herd behaviour.

Understanding the implications of stakeholder pensions for occupational pension schemes

This paper considers the issues arising out of the development of stakeholder pensions which are of concern to occupational scheme pension managers. It reviews the obligations which will be placed on employers and considers the factors to be taken into account when deciding whether to operate an occupational scheme as a stakeholder scheme. It concludes that the impact of stakeholder schemes on occupational pension provision may well depend on the effectiveness of the promotion of stakeholder pensions by the Government and other sources. The paper was first presented at a conference on the future of occupational pension schemes on 10th April, 2000.

State and occupational pension provision

State and occupational pension provision

State and Occupational Pension Provision

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