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Anglo-German Foundation - Creating Sustainable Growth in Europe – Mid-point events Friday, 30 November 2007
Multipillarism compared: assessing the impact on
employees of pension system change in Britain
and Germany
Paul Bridgen, Traute Meyer (University of Southampton, UK), Michaela Willert (Freie Universität Berlin)
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Dynamics of pension reforms in Europe: “Passive privatisation”, indvidualisation
British liberal pension regime
Second pillar retrenchment: from defined benefit to defined contribution schemesBut: higher basic state pension and more compulsion in occupational schemes planned
German conservative pension regime
First pillar retrenchment: from social insurance to multi-pillarism
Bridgen/Meyer/Willert
General questions
Assessing the impact of change for citizens
• Evolution of change• Pension scheme and savings schemes features• Future retirement incomes
Explaining the developing pattern of non-state provision
How do social policies contribute to sustainable growth?
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Mapping change - Britain
Change: db schemes lose dominance in FTSE100 companiesBut: change is sector specific
Shift to dc pioneered by financial services, 1995-2000Shift in retail sector: 2002/3
Manufacturing and Energy/Water remain dominated bydb and hybrid schemes
Db remains dominant in public sector
State facilitation of ‘Personal Accounts’
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Mapping change - Germany
Public retrenchmentExpansion of voluntary occupational and personal schemes, often integrated into collective agreements
DC schemes in the majority in the private sector, low employer contribution rates.
DB schemes in public sector, higher employer contribution rates
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Comparing change in Britain and Germany
Since 2001 Germany‘s regulatory regime has moved closer to the British
Typical featuresRisk sensitive public pension without poverty thresholdVoluntary occupational sector
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Micro-simulation of retirement income for 3 women & 3 men
Earnings: 0.5, 1, 1.5 of gross annual wages while in workLabour market entry age: 18 (0.5), 20 (1), 24 (1.5) Exit: 65Start of career: 2007 (0.5), 2009 (1), 2011 (1.5)End of career: 2054
Women:2 children (0.5, 1); 1 child (1.5)2 years economically inactive per child, then part-time work until 65 (0.5, 1) or for two years, then full-time until 65 (1.5)
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Criteria for choice of occupational schemes
Britain: FTSE100 – Large company schemes & public sector
Germany: 11 DAX companies; sectoral scheme for finance, public, retail sectors; various manufacturing schemes
Best, worst, and most typical schemes in Manufacturing, Finance, Retail, Public Sector
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Outcome of British and German pension regimes
High social exclusion risk
Pension inequality, caused by:
• Inputs
• Arbitrary factors
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Projected outcomes for all German and British biographies by benefit type in relation to social inclusion
0
50
100
150
200
250
0 0.5 1 1.5 2
Wages as a proportion of average
% o
f soc
ial i
nclu
sion
line
German male assistance
German femaleassistanceBritish male assistance
British female assistance
German male State
German female State
British male State
British female state
German male Oc Pen
German female OcPen
British male OcPen
British female OcPen
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Pension inequality, caused by:
• inequality of employee contributionsOutcome legitimised by belief in meritocracy
• inequality of pension scheme conditions by sector and employerOutcome not legitimised by meritocracy
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total projected pension outcome for UK male illustrative biographies, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wages as proportion of average
% o
f soc
ial i
nclu
sion
line
Highest occupational
Lowest occupational
Personal Accounts
Pension Credit
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total projected pension outcome for UK female illustrative biographies, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wages a a proprtion of average
% o
f so
cial i
nclu
sion
line
Highest occupational
Lowest occupational
Personal Accounts
Pension Credit
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total projected pension outcome for German male illustrative biographies, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wage as a proportion of average
% o
f soc
ial in
clusio
n lin
e
Highest occupational
Lowest occupational
State
Social Assistance
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total proejcted pension outcome for German female illustrative biographies, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wage as a proportion of average
% o
f soc
ial i
nlcu
sion
line
Highest occupational
Lowest occupational
State
Social Assistance
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total projected pension for UK illustrative male biographies by sector, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wages as a proportion of average
% o
f so
cial
incl
usi
on li
ne
Manu
Finance
Retail
Public
State
Bridgen/Meyer/Willert
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Variations in total projected pension for German male illustrative biographies by sector, 2057
0
50
100
150
200
250
300
350
0 0.5 1 1.5 2
Wage as a proprotion of average
% o
f soc
ial i
nclu
sion
line
Manu
Finance
Retail
Public
State
Bridgen/Meyer/Willert
Germany and Britain compared
German pension regime no longer fits „conservative“ but is closer to „liberal“ regime type
Both face problems of social inclusion
Differences
• German state pensions more generous (Bismarckian legacy)
• British occupational pensions more generous, inter- intra sectoral variation high (liberal legacy)
• German inter-sector variation in occupational system lower, intra-sectoral variation insignificant (corporatist legacy)
.
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
How do both systems contribute to sustainable growth?
Economic sustainability
• Competitiveness of companies
Social sustainability
• Social inclusion and poverty
Political sustainability
• Pension system supported by general consent
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Economic sustainability
Britain: High
• Costs reduced, share price and investment protected by decline in company contributions and liabilities
• Industrial relations intact Germany: High
• Non-wage labour costs decreased through public pension cuts
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Social sustainability
Britain: Low – perhaps moderateOccupational retrenchment increased risk of social exclusionExtent depends on success of current reform act
Germany: LowPublic retrenchment and low occupational benefits increased risk of social exclusion
But: Good means-tested safety net in both countries
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Political sustainability
Britain: ModerateReformed system promises to address middle class insecurity and employer discontent
Intra-/inter-sectoral inequality conflicts with discourses of fairness and meritocracy but no major protest Inequalities obscured
Germany: ModerateRetrenchment increased general insecurity. But no major protestInequalities obscuredCollective bargaining defused conflicts?
Introduction Mapping Change Outcome of change Contribution to sustainable growth
Bridgen/Meyer/Willert
Sustainable?
Overall: YES
Change has meant a decline in pension levels for most Germans and a substantial group of British citizens
But: no strong political pressure for change in Germany. In Britain pressure for reform has been defused by deferred reform at low cost to the state and large companies
Introduction Mapping Change Outcome of change Contribution to sustainable growth