anglo-german foundation - creating sustainable growth in europe – mid-point events friday, 30...

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


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?



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’



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



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



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)



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



Outcome of British and German pension regimes

High social exclusion risk

Pension inequality, caused by:

• Inputs

• Arbitrary factors




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



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



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



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


Lowest occupational

Personal Accounts

Pension Credit



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


Lowest occupational

State

Social Assistance



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


Lowest occupational

State

Social Assistance



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



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


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)

.



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



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



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



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?



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


anglo-german foundation - creating sustainable growth in europe – mid-point events friday, 30...

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