Unemployment and Pensions

Protection in Europe: the Changing

Role of Social Partners

Occupational Welfare in the United Kingdom:

From Skill Retention Tool to Social Protection Only

for Legitimate Social Risks

Marek Naczyk

Brussels, 22 November 2016

with the financial support of the

Large development of OW in “liberal” UK?

• Except for the NHS, not a very generous welfare state

• To be sure, occupational provision well entrenched:

Voluntary private expenditure, 2011 = 5.3% of UK GDP vs.

2.2% OECD average (OECD 2013)

• Yet huge variation in significance of OW across social

risks:

Old-age pensions vs. the rest…

with the financial support of the

OW’s changing institutional designs and functions

• Late 19th century: rise of the friendly societies

• From early 20th century: expansion of OW mainly as a

result of unilateral decisions made by employers

retaining skilled workers and pacifying labour

• Trade unions reactive rather than proactive

• Fiscal welfare = driver of OW from inter-war period, but

direct state regulation of OW (now tool of social

protection) only from 1960s/70s

with the financial support of the

Occupational pensions: heyday, decline and revival

• Come on top of flat-rate “basic state pension”

and, from late 1950s until recently, were

“contracted out” of additional state earnings-

related pension schemes

with the financial support of the

Tier 1

Public PAYG

Mandatory

coverage

Contributory flat-

rate

basic state

pension

Traditional structure of UK pension system

with the financial support of the

Thatcher government: BSP

uprated in line with prices

instead earnings

Pensions Act 2007: BSP

uprated again in line with

earnings

Source: DWP 2015

Tier 1

Public PAYG

Mandatory

coverage

Contributory flat-

rate

basic state

pension

Tier 2

Public PAYG

Mandatory

coverage

Contributory

earnings-related

GRB/SERPS/S2P

Tier 3

Private fully-funded

Voluntary coverage

Occupational

schemes

Traditional structure of UK pension system

with the financial support of the

Typ

ically

Co

ntra

cte

d o

ut

Occupational pensions: heyday and decline

• Come on top of flat-rate “basic state pension” and,

from late 1950s until recently, were “contracted out”

of additional state earnings-related pension

schemes

• OW covered two-thirds of workforce by early 1970s

• Decline of defined-benefit schemes from Thatcher

era: state regulation + introduction of “personal

pensions”

with the financial support of the

Tier 1

Public PAYG

Mandatory

coverage

Contributory flat-

rate

basic state

pension

Tier 2

Public PAYG

Mandatory

coverage

Contributory

earnings-related

GRB/SERPS/S2

P

Tier 3

Private fully-

funded

Voluntary

coverage

Occupational

schemes

Traditional structure of UK pension system

with the financial support of the

Typ

ically

Co

ntra

cte

d o

ut

Tier 4

Private fully-

funded

Voluntary

coverage

Personal

pensions

Opt out

Opt out

Traditional structure of UK pension system

with the financial support of the

The revival of occupational retirement provision

• Between 2012 and 2018 (result of Pensions Act 2008),

gradual introduction of “auto-enrolment” of workers in

workplace pension schemes

• min. contrib. rate of 8% (with 3 percentage points paid

by employer)

• Mechanism of “contracting out” suppressed

• More generous basic (“new”) state pension

with the financial support of the

Tier 1

Public PAYG

Mandatory

coverage

Contributory flat-

rate

basic state

pension

Tier 2

Public PAYG

Mandatory

coverage

Contributory

earnings-related

GRB/SERPS/S2

P

Tier 3

Private fully-

funded

Voluntary

coverage

Occupational

schemes

Traditional structure of UK pension system

with the financial support of the

Typ

ically

Co

ntra

cte

d o

ut

Tier 4

Private fully-

funded

Voluntary

coverage

Personal

pensions

Opt out

Opt out

Tier 1

Public PAYG

Mandatory

coverage

Contributory flat-

rate

new state

pension

Tier 2

Private fully-funded

Automatic

enrolment with

possibility to opt out

Workplace

(occupational,

group personal,

group stakeholder)

pension schemes

Tier 3

Private fully-funded

Voluntary coverage

Personal pensions

and other

instruments of

individual savings

New structure of UK pension system

with the financial support of the

£155.65 per week

instead of £115.95

per week with old

basic state pension

Min. contrib. rate of

8% of gross salary

with the financial support of the

Role of trade unions in governance

• Traditionally, trustees in defined-benefit schemes were

appointed by employers

• Mandatory to have one third of “member-nominated

trustees” after Pensions Act 1995 (cf. Maxwell scandal)

• Rise of defined-contribution schemes means fewer

schemes are trust-based low union representation

• But, to help auto-enrolment, creation of “low-cost”

National Employment Savings Trust (NEST)

with the financial support of the

Occupational Unemployment-Related Provision?

• Investigated two forms: enhanced redundancy pay and short-time

working arrangements

• While quite prevalent during inter-war and post-war period,

stagnant since the 1970s

• No reliable data on coverage and level of benefits

• Fiscal support:

– No state support for short-time working except for ProAct (2009-2010)

scheme in Wales

– GBP 30,000 ceiling on tax exemptions on (statutory and enhanced)

redundancy pay not revised since 1988

with the financial support of the

Conclusion

• No good occupational provision without good state provision:

– Pensions: parallel decline of state and occupational provision before

reversal in the late 2000s

– Unemployment: retrenchment of state unemployment benefits has not

led to development of occupational provision

• Different challenges in two areas:

– Unemployment: improving legitimacy of state and occupational

provision

– Pensions: ensuring high-quality occupational provision for all social

groups

with the financial support of the