Occupational Pension Schemes Research Articles

Occupational pension scheme: an innovative tool in HRM

PurposeThis paper aims to recognize whether occupational pension scheme (OPS) is offered in a varied set of measures intended to design a coherent human resources management of people. Second, the authors will study the relationship of these OPS with job satisfaction and job change. The interest of this ultimate goal lies in the relationship between job satisfaction and employee motivation, commitment and loyalty.Design/methodology/approachStatistical methodology is carried out from three approaches. First, a descriptive analysis to define what type of companies are offering these OPS and what positions are occupying the OPS beneficiaries. Second, an exploratory analysis is conducted to establish associations between variables. The authors use the X2 tests with contingency tables and ANOVA of one and two factors. In all cases, the requirement of homoscedasticities is checked through Levene test. Third, the authors conduct a joint analysis between the studied variables. Multiple correspondence analysis is used to analyze the association between certain characteristics of the firm and the fact to offer OPS and other social benefits. Finally, to assess the potential impact of OPS on the decision to change the job, the authors conduct a binary logistic regression analysis, in which the authors used control variables of certain characteristics of the individual and the company.FindingsCompanies who develop the most innovative human resources management policies offering more training, more social benefits and incentives, are also most likely to implement OPS. The OPS beneficiaries have higher levels of satisfaction and are less likely to change the job, regardless of the position held and salary.Originality/valueTo the extent that the future is perceived as more uncertain, the savings will be more oriented toward prevision. OPS can be a saving instrument with broad appeal for business and workers. And of course, it can be a tool of differentiation in the recruitment policy, which attract workers to the company over other competitors which do not offer this kind of benefits.

One pillar crumbling, the others too short: old-age provision in Germany

Responding to the challenges of demographic ageing, the German system of old-age provision has undergone substantial changes during the past two decades and is in fact still under reconstruction. Benefit levels deriving from the public pay-as-you-go scheme will decline until 2060, while contribution rates may still go up substantially. Additional cover from private or occupational pension schemes is urgently needed. Thus far, steps in this direction have been half-hearted. The continuing crisis in financial markets and a more profound distrust in financial institutions and market-based instruments of old-age provision currently create obstacles to progress with this overhaul. Nevertheless, despite the differing traditions, Germany could learn important lessons now from other developed countries that have longer experience of funded pensions.

Another look at housing finance in Africa

Purpose – Most households in Sub-Saharan African cannot afford adequate housing. Most often, their pension benefits are also meagre, usually resulting from low contribution levels and mismanagement. Coupled with low life expectancies, most would not live to enjoy the benefits of pensions, thus validating the need to utilize their hitherto deferred pension benefits for immediate housing investment and consumption. Design/methodology/approach – Quantitative research methodology via the present value technique was used in valuing pension benefits to demonstrate the potential of pension schemes as savings mobilization mechanisms for long-term pension-backed housing financing in Ghana. Findings – Policy wise, the paper provides some evidence to support proposals for the development of pension-backed housing finance systems in Ghana with lessons for Sub-Saharan Africa. The authors demonstrate that the Tier 2 defined contribution mandatory occupational pension scheme could serve the purpose of a savings mobilization mechanism for long-term housing financing. The authors observe that by increasing the Tier 2 contribution rate to 30 per cent, the majority of the sample, mainly of the middle-income class, could accumulate between US$11,000 and US$17,000 over their working life. At the same rate, between US$5,783 and US$9,550 could have been raised as savings between 2010 (when implementation began) and 2014. This could form a substantial equity contribution in a mortgage investment and or borrowed on a housing microfinance basis. Originality/value – The paper contributes to the ongoing debate on the need to develop alternate savings mechanisms and collateral assets using pension assets, other than property, for mortgage financing. The proposals made are aimed at influencing policy by way of advocating for the use of latent pension equity to improve the housing conditions of members while they are alive, and also to suggest pension-backed housing financing as an alternative investment option. A comprehensive study would be required to settle issues of scalability, pricing and model design.

Mandatory Participation in Occupational Pension Schemes in the Netherlands and Other Countries. An Update

This paper discusses mandatory participation in Dutch occupational pension schemes. While historically mandatory participation is a feature of most second-pillar pension arrangements, some recent developments may affect the case for mandatory participation. The main ones are the revision of the Dutch supplementary pension contract, changes in the prudential supervisory rules and developments in European regulations regarding supplementary pensions. We also compare mandatory participation in the Dutch occupational pension system with that in a number of foreign pension systems.

Occupational Pension as Second Pillar Provision in the EU Policy Context

The ageing population in the European Union (EU) and the effects of the financial and economic crisis has strained the sustainability of public pension schemes in Member States (MS). To ensure adequate incomes for people after retirement, many MS are putting increasing emphasis on supplementary forms of retirement income. These include occupational pension schemes that provide retirement income based on employment earnings during working life. Whilst MS are responsible for the design of their pension systems, occupational pensions affect, or are affected by, various EU policies and concerns. Free movement of workers means that workers should preserve rights in occupational pensions when they move to another MS. EU-wide companies need “cost-efficient” ways to provide pensions to workers in different MS. The European Commission has proposed, or will, improvements in both areas. Furthermore, workers also need cost-effective protection against risks (including employer insolvency) and reliable pension information to make good retirement decisions. Increasing reliance on occupational pensions may put women at risk of poverty in old age. Though MS will continue to support a very wide variety of approaches to occupational pensions, the EU can contribute to ensuring that citizens enjoy an adequate and sustainable income in old age. This paper aims to give an insight into how occupational pension stands as “second pillar” provision in the EU policy context. Key issues in pension provisions in the European Union (pensions and employer insolvency, risk management, and gender) have also been discussed. Secondary data have been used in the paper and they have been analyzed using descriptive research method, with appropriate examples of occupational pension provisions in the European Union.The paper concludes that occupational pensions: a) are an efficient way of saving for supplementary pensions, and b) can offer wide coverage and economies of scale in governance, and management.

Reforming occupational pension schemes: the case of the Netherlands

In many countries, occupational plans are being reformed away from defined-benefit (DB) to defined-contribution (DC) designs. This paper explores the case of the Netherlands, which features a particularly high ratio of occupational pension assets to GDP. Dutch occupational DB plans suffer from a number of serious weaknesses, including ambiguous ownership of assets, back-loading of benefits, and lack of tailor-made risk management. To address these weaknesses, we propose collective individual DC plans that are actuarially fair. These schemes maintain important strengths of collective schemes, such as mandatory saving, collective procurement, and pooling of biometric risks. At the same time, they eliminate intergenerational conflicts about risk management and distribution through transparent individual property rights on financial assets and tailor-made risk profiles in individual accounts. We show how the transitional burden due to phasing out the back-loading of pension benefits can be addressed without a substantial increase in contributions.

PROFESINIAI PENSIJŲ FONDAI: TEISINIS REGULIAVIMAS IR PROBLEMOS

Šiame straipsnyje analizuojamos profesinių pensijų fondų teisinio reguliavimo nuostatos Europos Sąjungos instituciniu lygmeniu ir Lietuvoje, profesinių pensijų fondų veiklos schemos ir problematika. Atskleidžiami esminiai Lietuvos profesinių pensijų sistemos trūkumai ir pateikiami galimi šių trūkumų šalinimo pasiūlymai. Straipsnio tikslas – pateikti profesinių pensijų fondų instituto analizę ir atskleisti probleminius šio instituto taikymo aspektus. Straipsnis skiriamas finansų rinkos dalyviams, teisininkams ir šia sritimi besidomintiems mokslininkams.

Thatcher: the Myth of Deregulation

New report debunks the idea that Thatcher deregulated financial services. Summary: It is commonly believed that, during the 1980s, Margaret Thatcher presided over a substantial reduction in government regulation of financial services. Indeed, some have blamed this deregulation for the financial crash that took place nearly 30 years after 1979. ‘Big Bang’ in 1986 did remove the restrictive practices and largely private regulation that existed in securities markets. However, this involved the state unwinding systems of private regulation and was not, as such, a simple act of deregulation. Furthermore, not long after Big Bang, investment and financial markets became regulated under the Financial Services Act. This also extended detailed statutory regulation into areas of financial markets which had previously been more-or-less unregulated by the state. Retail financial products also became heavily regulated at the retail level through the Financial Services Act, whereas they had previously been regulated by contract law, professions and industry agreements. Industry agreements that had been effective in reducing ‘mis-selling’, such as the maximum commission agreement, were made unlawful. The FSA (now FCA) have been fighting to deal with the problem of commission-incentivised mis-selling ever since. Overall, from 1979 to 2010 there was an increase from one regulator for every 11,000 people employed in finance to one regulator for every 300 people employed in finance. If the rates of growth of both regulators and people working in finance seen in this period continue, the number of people working in financial regulation will overtake the number of people working in financial services by around 2070. This excludes compliance officers working for financial services firms themselves. Some attempts have been made to estimate the costs of financial regulation. However, most of the costs are indirect and result from reduced innovation and competition and cannot be calculated. In 1986, the direct cost of financial regulation was estimated to be £20m; this rose to around £90m by 1992 and £673m by 2014. In the 1980s, a reasonable estimate of compliance costs was generally thought to be around four times the direct costs of the regulatory bodies; the ‘excess burden’ arising from the reduction in innovation and competition and the distortion of prices was thought to be around four times the compliance costs. Government regulation of employment contracts, which required employers to allow their employees to opt out of occupational pension schemes, led directly to the pensions mis-selling scandal of the late-1980s/early-1990s. Once again, this was not an act of deregulation but the state prohibiting a form of private contractual agreement. Although occupational pensions became much more heavily regulated over time, this did not happen until 1995, under the Major government. Before 1979, there was very little regulation of the activities of life insurance companies. There was then a huge increase in the regulation of insurance companies in the 1980s. This came partly from the regulation of their product sales activities under the Financial Services Act, but also arose directly from the Insurance Companies Acts 1981 and 1982 and the associated regulations. These Acts allowed the Secretary of State to spawn further regulation without proper reference to parliament and led directly to the situation that prevails today of a very heavily regulated life insurance sector. Until 1980, the financial sector was regulated by private institutions, professional codes and a small amount of well-drafted and highly targeted primary legislation. Under Thatcher, private regulatory mechanisms were unwound or prohibited and replaced by state regulation. Since the 1980s, the financial sector has been regulated by statutory bodies developing thousands of paragraphs of prescriptive statutory regulation and has gradually extended its reach into new fields. It is true that Thatcher undertook certain liberalising reforms such as the abolition of exchange controls. However, state regulation of securities and financial markets became much more intrusive. The idea that the 1980s was a period of increasing regulation and not deregulation is not revisionist history. Contemporary accounts argued that, under the regulatory system that developed, the City has ceased to be a place “where you look after yourself according to a code of honour of conduct. It is a tough regulatory system”; that the regulator had a “very tough bunch of powers”; and that “There is a substantial risk, in fact, that we now have massive overkill of the supervisory structure in the financial industry”.

Reforming Dutch Occupational Pension Schemes

Dutch occupational defined-benefit plans suffer from a number of serious weaknesses, including ambiguous ownership of the surplus, back-loading of benefits, and lack of tailor-made risk management. To address these weaknesses, we propose collective individual defined-contribution plans that are actuarially fair. These schemes maintain important strengths of collective schemes, such as mandatory saving, collective procurement and pooling biometric risks. At the same time, they eliminate intergenerational conflicts about risk management and distribution through transparent individual property rights and tailor-made risk profiles. We show how the transitional burden due to the phasing out the back-loading of pension benefits can be addressed without a substantial increase in contributions.

Trustees and pension schemes in Ireland

Purpose – This article aims to highlight the gap between the legal responsibilities and the practice of pension fund trustees in Ireland. Design/methodology/approach – The paper relies on primary and secondary data analysis of trustee practice and enforcement cases to highlight the gap between law and practice. Findings – The article finds that there is an inconsistency between legal requirement and practice in the calibre of trustee and trustee training across Irish occupational pension schemes. This has adverse consequences for pension governance and performance. Practical implications – The findings raise the question as to whether there should be mandatory qualifications for trustees or mandatory standardised trustee training in a prescribed format, with which trustees should comply. It also questions whether there should be a governance code for trustees to ensure a minimum standard or target level of competence and good governance on the part of pension scheme trustees. Originality/value – There is a distinct lack of emphasis in the literature and in practice on the inconsistency between the extent of the responsibilities which trustees ultimately carry, and the legal exposure this potentially creates for trustees who unduly rely on other trustees or third parties in the trustee decision making process.

THE EXTENDED MRP MODEL FOR THE EVALUATION AND FINANCING OF SUPERANNUATION SCHEMES IN A SUPPLY CHAIN

The retirement age of industrial workers in national pension schemes is being raised. However, many industrial workers are not able to work until they have reached the increased retirement age. This problem is decreasing social security, increasing workers anxiety regarding the future and influencing the quality and timing of production processes. Disruptions and lower quality items produced in one activity cell of a supply chain can have a ripple effect throughout an entire supply chain. To solve this problem, we should put in place supplementary occupational pension schemes, which would compensate firms for the depreciated ability of their elderly workers to work when they have reached the previous retirement age but have not yet reached the new, higher retirement age. This article is introduces a model that is based on extended MRP Theory. The model can be used as a basis for negotiations between employers and employees to keep production at the same level of quality. The trade-off between higher contributions to supplementary occupational pension schemes and lower added values is considered. Contributions enable the early retirement of industrial workers at one or more workplaces in a supply chain, while lower added value is the result of lower quality and the perturbed timing of items that are produced in one or more activity cells of a supply chain: these issues have a ripple effect throughout an entire supply chain. The net present value approach is used.

Mandatory Participation in Occupational Pension Schemes in the Netherlands and Other Countries

This paper discusses mandatory participation in Dutch occupational pension schemes. While mandatory participation is a historical feature of most second-pillar pension arrangements, some recent developments may affect the case for mandatory participation. The main ones are the revision of the Dutch supplementary pension contract, changes in the prudential supervisory rules and developments in European regulations regarding supplementary pensions. We also compare mandatory participation in the Dutch occupational pension system with that in a number of foreign pension systems.

Growing the UK Pension Pot: The Case for Privatisation

The system of contracting out of state pensions – a form of pension privatisation – operated very successfully in the UK until recent years with cross-party support. This was very important in ensuring that the UK system of private pension provision was one of the most successful in the Western world. This paper proposes reviving the concept of voluntary pension privatisation through contracting out using the proposed reformed UK pension system that will be introduced from 2016. Under the proposals, individuals would receive rebates of national insurance contributions equal to the fair actuarial value of the pension that they will forego as a result of opting out of half the state pension. The rebates will be paid to somebody contracting out regardless of whether that individual pays sufficient cash national insurance contributions: the rebates are designed to reflect the actuarial value of the pension foregone. They will vary with age and be available to low earners and those who are receiving state pension entitlement as a result of undertaking caring responsibilities. Such people will be able to build up considerable pension assets in their own right. In the context of widespread discussion about the inequalities arising from returns on capital being higher than economic growth, this might be regarded as especially important. Currently, large numbers of people are discouraged from accumulating capital because the main objectives of saving are fulfilled by the state pension schemes. If the state pension is linked to earnings, the rebate would be around £3,000 per year for a 40-year-old. This seems high, but it is a reflection of the very high cost of the state promising earnings-related pensions as it does currently. The rebate would be saved in a defined contribution vehicle and the government’s low-cost National Employment Savings Trust (NEST) scheme would be available as a savings vehicle. If the state pension were linked to prices, the rebate would be around £1,500 for a 40-year-old. The rebates will change as mortality and interest rates change and be set according to objective criteria. They would be challengeable in the courts to prevent the erosion of rebates as happened under the previous contracting out scheme. If 10 million people decided to contract out, rebates might total between £15 billion and £30 billion. The government has, in fact, paid national insurance rebates of £10 billion until quite recently. Although this cost may seem high, it is merely bringing forward the cost of government pension promises to the time at which the promises are made. It would be reasonable for the government to borrow to finance the payment of rebates if necessary (or run lower budget surpluses) given that, when people contract out of the state pension, it lowers future pension liabilities. This reform can be seen as a first step to a more comprehensive plan of pension privatisation. The reform proposed in this paper would revive – in a more robust form – the policy of UK governments which, until, recently, was to promote private pension provision as an alternative to state provision. It is particularly important given that the coalition government is now in the process of abolishing contracting-out from state pensions. Largely due to the system of contracting out developed after the war more than 5.5 million workers (nearly one-quarter of the workforce) had personal pension plans by 1995, while many more were members of occupational pension schemes. Overall, the number of people contracted out of the state earnings related pension scheme (SERPs) reached 13.8 million by 1994/95. The ratio of people contracted out of SERPs to SERPs’ members peaked at over 2:1 in 1992/93. Partly because of this policy the value of pension fund assets in the UK is equal to 73 per cent of GDP. In contrast, in large parts of continental Europe private pension fund assets are almost non-existent: in France, Italy, Spain and Greece, as well as in Austria, Germany, Sweden and Norway, they account for less than 10 per cent of GDP. However, contracting out declined in the twenty-first century. By 2011, only 1.6 million people were contracted out through private sector defined benefit schemes. The main reason for the reduction in contracting out was the reduction in rebates of national insurance contributions that were received by people who contracted out. The rebates from 2012 onwards were set at 4.8 per cent of the relevant earnings band when a figure of over 10 per cent would have been more justifiable. The reforms proposed in this paper would ensure that the rebates of national insurance contributions given to those contracting out of the state scheme would reflect the value of the state pension benefits that were given up.

Actuarial Valuation of Pension Schemes: An Irish Perspective

The liabilities of a pension plan are monetary amounts to be paid at various times in the future. The current legal and regulatory framework for Irish occupational pension schemes can result in three different valuations for a scheme at any particular point in time. Using valuation models, this paper considers whether across the three different valuation bases there is consistency in the sensitivity of the reported results to changes in the key actuarial assumptions and what are the most sensitive assumptions under each calculation basis. It questions whether this current valuation framework creates potential hazards for scheme trustees who are charged with governance of the scheme and are ultimately responsible for the key decision-making processes within the scheme.

Factors behind the administrative fees of private pension systems: an international analysis

AbstractThis work has three objectives: first, to provide a comprehensive review of administrative fees; second, to construct a comparative data set for 53 countries; and third, to perform an empirical analysis that highlights the main determinants of pension fees from a world-wide perspective. The paper provides an econometric analysis by using panel data techniques. It finds the greater statistical significance of market size, result that is reinforced by mandatory pension schemes. Other factors, such as structural country conditions, market's vertical integration and the presence of an occupational pension scheme, seem to be less relevant.

Financial Sustainability of Pension Systems in the European Union

1. Introduction Improvements in health and welfare have increased life expectancy in the world. Increasing life expectancy together with low fertility rates (in other words population ageing) is one of the greatest challenges that countries are facing now and in the future. Public pension spending increased 6.4% in the OECD (Organisation for Economic Co-operation and Development) between 1980-2007 in parallel with growing retired population (Adema, et al., 2011, p.3). Public spending on pensions and other retirement benefits in OECD countries grew on average 17.5% faster than national income between 1990 and 2005 (OECD, 2009, p.2). It will become harder for the governments to sustain fiscal sustainability of public pension systems in the long term. Life expectancy at birth for males is projected to increase by about 8 years over the projection period, from 76.7 in 2010 to 84.6 in 2060. Life expectancy at birth is projected to increase by 6.5 years for females, from 82.5 in 2010 to 89.1 in 2060 in the EU (European Union). On the other hand the total fertility rate is projected to rise from 1.59 in 2010 to 1.64 by 2030 and further to 1.71 by 2060. The EU population is projected to increase (from 502 million in 2010) up to 2040 by almost 5%, when it will peak (at 526 million). Thereafter, a steady decline occurs and the population shrinks by nearly 2% by 2060. Nonetheless, according to the projections, the population in 2060 will be slightly higher than in 2010, at 517 million. The age structure of the EU population is projected to change dramatically during projection period. It is projected that the population aged 15-64 will drop by 14%, and the population aged 65 and above will almost double, rising from 87.5 million in 2010 to 152.6 million in 2060 in the EU. Consequently the demographic old-age dependency ratio (people aged 65 or above relative to those aged 15-64) is projected to increase from 26% to 52.5% in the EU as a whole over the projection period (European Commission, 2012a, pp.24-27). The purpose of this study is firstly to present the public pension systems briefly and then evaluate the financial sustainability of public pension systems in consideration of pension expenditures, ageing and the Eurozone sovereign debt crisis. 2. Structures of Pension Systems in the EU Member Countries Pension systems in EU-27 differ from each other in a lot of ways such as general and financial structures, pension schemes, eligibility requirements, and conditions of normal and early retirements, historical past, income sources, economic development levels and demographic structures of member countries. However pension systems of many EU member countries rests on three pillars which are called as public pensions, funded occupational pensions and personal pension plans. The share of these pillars within the overall architecture varies from country to country. Classifications of mandatory parts of the pension systems of EU member countries in accordance with OECD are given in Table 1. EU countries generally use multiple programs which are designed to ensure pensioners achieve some absolute, minimum standard of living. Similarly the mandatory second-tier, savings components of pension systems are different across EU countries. Defined benefit (DB) plans are provided by the public sector in 12 EU countries and by the private sector in the Netherlands. Defined-contribution (DC) plans are compulsory in 6 EU countries. In Denmark and Sweden, there are quasi-mandatory, occupational DC schemes in addition to smaller compulsory plans. The notional-accounts schemes (sometimes call defined-contribution plans (NDC)) used by 3 countries (Italy, Poland and Sweden) and points schemes used by 4 countries (Estonia, France, Germany and Slovak Republic). When the pension schemes in EU member countries are analyzed, it is seen that public pensions dominate the pension system mostly, occupational pension schemes are mandatory only in Austria, Netherlands; mandatory for public sector employees in Ireland, Malta, Spain; mandatory for only for selected professions in Portugal, Slovenia and quasi mandatory in Denmark, Sweden and it does not exist in 8 countries. …

Die Alterseinkommen von morgen: Zum Status der Altersvorsorge im Drei-Schichten-Modell

We analyze the future retirement incomes for current working cohorts in Germany both in absolute (replacement level) and in relative (replacement rate) terms. Due to the fundamental reforms of the statutory pension system implemented since 2001, it is necessary to include all relevant sources of retirement incomes, especially private (Riester-pension) and occupational pension schemes. For this purpose we use methods of data combination to draw information from several large sample data sets. As a by-product, this allows us to investigate regional disparities in future old age incomes.

Solidarity without the State? Business and the Shaping of the Swiss Welfare State1890–2000Leimgruber, MatthieuCambridge, Cambridge University Press (2008), 330p., ISBN 9780521875400 (hardback) and ISBN 9781107405448 (paperback)

Solidarity without the State? Business and the Shaping of the Swiss Welfare State1890–2000Leimgruber, MatthieuCambridge, Cambridge University Press (2008), 330p., ISBN 9780521875400 (hardback) and ISBN 9781107405448 (paperback)

Regulation without Reason: The Deleterious Effects of Government Regulation on Private Pension Provision

In this article, the history of regulation in pensions in the United Kingdom is analysed, in particular with respect to defined benefit occupational pension schemes. A framework of criteria for effective legislation is developed. The original prudent person rule provided a good framework for legislation, but most subsequent regulation that has been enacted does not meet our criteria. Recently regulation has increased the cost and risk of individual schemes and the systemic risk in the system as a whole. The article finds that, in totality, regulation has been disastrous for these schemes, contributing to their demise. The article concludes by briefly outlining how effective regulation might have developed to produce a flexible and resilient system.

The Sustainability of Pension Schemes

Poor financial market returns and low long-term real interest rates in recent years have created challenges for the sponsors of defined benefit pension schemes. At the same time, lower payroll tax revenues in a period of high unemployment, and rising fiscal deficits in many advanced economies as economic activity has fallen, are also testing the sustainability of pay-as-you-go public pension schemes. Amendments to pension accounting rules that require corporations to regularly report the valuation differences between their defined benefit pension assets and plan liabilities on their balance sheet have made investors more aware of the pension risk exposure for the sponsors of such schemes. This paper sheds light on what effects these developments are having on the design of occupational pension schemes, and also provides some estimates for the post-employment benefits that could be delivered by these schemes under different sets of assumptions. The paper concludes by providing some policy perspectives.