Pension Reforms in Southern Europe: The Italian Experience

The pension systems of Italy, Spain, Portugal, and Greece are organized according to the Bismarckian blueprint: ‘corporatist’ schemes of compulsory insurance covering different occupational groups, with different regulations. Historically, Italy pioneered developments by introducing compulsory pension insurance in 1919. Portugal and Greece followed suit in the mid-1930s, while in Spain fully fledged compulsory pension insurance arrived in 1947. Between the 1950s and 1980s, the pension systems in Southern Europe were significantly expanded in terms of coverage and improved in terms of benefits. This chapter discusses the trajectory of pension reform in Italy, the largest country in Southern Europe. It describes the main pension reforms of the first pillar; the efforts for promoting the development of a second, funded pillar; and recent developments under the administration of Silvio Berlusconi. The chapter also examines the gradual transformation of the ‘end-of-contract-payment’ (TFR) scheme.

Anglo-Saxon Occupational Pensions in International Perspective

Occupational pensions are today a major ‘second tier’ in Anglo-Saxon retirement income systems, providing benefits to a significant portion of the elderly population atop the basic ‘first tier’ benefits provided by the state. In the United States, for example, employer plans provide one-fifth of the income of the elderly — one-quarter if earnings from work are excluded — half the amount provided by public plans. By the end of the 1930s, employer pension plans had become standard in governments and mature big businesses throughout the industrial world. They had become critical tools for strengthening, then severing, relationships with workers. Britain took a different tack to strengthening employer plans. It primarily leveraged the contracting-out provisions in the State Earnings-related Pension Scheme (SERPS), introduced in 1978.

Financing UK Pensions

A key feature of the pension challenges currently facing Britain is the decline of the system of occupational pensions, particularly the decline of defined-benefit pensions. Here, it is often argued that the villain has been the government (in fact a succession of governments). In this view, over the past decades successive governments have delivered a catalogue of regulation and legislation that, though often well intentioned, has ultimately worked to the detriment of occupational pension provision. Alternatively, one might argue that we could have seen it all coming. It is important that future policy should be set up in a way that is sustainable and robust enough to cope with the huge uncertainty around the increase in life expectancy which we are hoping for. This chapter examines why, and when, things began to go wrong with the financing of British pensions.

Paying for Our Futures: The Political Economy of Pension Reform in the UK

The development of pension provision in Britain since January 1909, when the first public old-age pension was paid, should be celebrated as one of the greatest achievements of collective action in the twentieth century. This chapter examines what has and has not changed in terms of demographic and economic knowledge of pension systems. It then considers the causes and consequences of this delusional consensus and offers some suggestions about how a more responsible set of political and popular attitudes to pensions might be created, beginning with a fundamental reform to the state pension system. The rationale advanced by the Pensions Commission for maintaining much of the complexity of the current state system is the cost and disruption that would be entailed by radical change. This chapter discusses the political economy of pension reform in Britain, focusing on the link between demography and pensions as well as between pensions and economics.

Why Has It All Gone Wrong? The Past, Present, and Future of British Pensions

This chapter examines the political framework within which the debate about retirement income in Britain is conducted. It uses the lessons of the national minimum strategy, but takes into account today's political realities, to draw up a pensions reform programme. The Pensions Reform Group (PRG) advocates a new basic universal pension which guarantees an income in retirement above means-testing. This is to be achieved by keeping the current pay-as-you-go state pension and building alongside it a funded scheme so that in total a pension between 25–30 per cent of average earnings can be paid. This is a collective scheme but is not one run by the state as is today's national insurance retirement pension. Serious pension reform is far too big an issue for governments not to be interested in the outcome. That interest is accepted but balanced by the form of governance being proposed by the PRG.

Introduction

In 2002, the British government announced the establishment of a Pensions Commission to assess the state of the country's pension system. In its first report, the Commission confirmed that the nation's pension system is in deep crisis. How come some offer better pension security than that in Britain? How do they cope with similar pressures? In its proposals for extensive reform, the Pensions Commission hopes to plug the holes in the current state system for those (mainly women) with interrupted careers and caring responsibilities. The Commission has three proposals: raising the state pension age to 67, or perhaps 69, by 2050; the creation of a more generous basic state pension by allowing the earnings-related second state pension to evolve into a flat-rate top-up to the present scheme; and the automatic enrolment of all workers into a National Pensions Savings Scheme. This introduction also looks at pension reforms abroad in areas such as Europe, including Germany and Sweden.

Perspectives on Pensions in Eastern Europe

The dramatic political and economic changes witnessed by Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) since the late 1980s did not leave the area of old-age security unaffected. While the inherited pension systems were rather uniform, the past seventeen years have brought diversity to the region's retirement schemes. Most transition countries have opted for parametric reforms, thus changing key characteristics of their pre-existing pay-as-you-go schemes. A number of countries in the region have embarked on partial or full pension privatization, thereby following the much advertised Latin American role models. Moreover, some countries have introduced national defined-contribution plans, similar to the schemes of Sweden and Italy. Overall, contributory approaches to old-age security — whether publicly or privately organized — dominate the post-socialist pension reform agenda. This chapter outlines the pre-1989 legacy in old-age security and the impact of transformation on the existing retirement schemes. It reviews pension reforms in CEE and the FSU and evaluates the state of pension reform in the post-socialist world.

Why So Different? Why So Bad a Future?

While virtually all European countries with advanced welfare states are worrying about how to cut back their state pension generosity, and sometimes partially succeeding, the United Kingdom faces the opposite problem. It is offering its citizens both inadequate and very varied pensions for the future. The UK began providing state pensions at the beginning of the twentieth century and has been unusual in Europe in developing a large private occupational pensions sector built on and fostering sophisticated financial markets in London. The country relies more on means-testing than any other European country. No one thinking of the UK as conforming to the ‘Beveridge model’ would have expected that. William Beveridge was so adamant that this was not what the British people desired. A different theoretical starting point is needed to explain these dilemmas. It has to take account of the labour market and the particular structure of the trade union movement in the UK and its relationship to the Labour Party. The chapter also considers the role of the Pensions Commission.

The Roots of Public Pensions Provision: Social Insurance and the Beveridge Plan

William Beveridge and his Report on Social Insurance and Allied Services of 1942 continue to occupy a pivotal position in the history of social security provision not only in Britain and Europe but also in the wider world into the twenty-first century. This chapter examines why the Beveridge Plan and its ideas were so popular and seemingly so authoritative. Although Beveridge's long public career in social policy had been mainly concerned with the quite different sphere of unemployment insurance, his ideas about old-age pensions did not spring from nowhere in 1941, but dated back to the year 1907. In 1908, he became a personal adviser to Winston Churchill at the Board of Trade, where he was instrumental in inserting many of his ideas about social insurance into the unemployment provisions of the National Insurance Act of 1911. At the time of his appointment as chairman of the Social Insurance Committee in June 1941, Beveridge had almost no specialist knowledge of pensions administration or pensions finance.

The UK Occupational Pension System in Crisis

The crisis in occupational pensions in Britain extend beyond coverage rates and benefit levels. Private-sector sponsors of existing defined-benefit plans face an uncertain future notwithstanding the establishment in 2005 of the Pension Protection Fund. As for the public sector, the unfunded status of many defined-benefit plans raises significant doubts about their long-term viability. Whatever happens to the Turner Report, the pension crisis has just begun; it is bound to dominate domestic politics for another generation. Most private sector employees do not have access to social security entitlements while public sector employees may see their entitlements passed back to central government to become yet another liability on an already overburdened state. This chapter examines the crisis in the British occupational pension system, the link between pensions and modern capitalism, corporate capitalism in a global environment, lessons for public policy, capital market efficiency and occupational pensions in the public sector.