Profiling Social Rights – Public Old Age Pensions in Europe

Jon KvistHans Hansen

SFI – The Danish National Centre for Social Research

Who is this?

Date of Birth: 02 May 1975Birthplace: Leytonstone, LondonNationality: EnglishHeight: 180 cm (5ft 11in)Weight: 67 kg (10st 8lb)Eyes: GreenHair: BrownResidence: Hertfordshire and Madrid (Spain)Martial status: Married to VictoriaCurrent club: Los Angeles Galaxy (US)Position: MidfieldSquad number: 23

Source: European Football Personalities

Profiling welfare states - A summary overview of regime characteristics

Liberal Social democratic

Conservative

Role of:

Family

Market

State

Marginal

Central

Marginal

Marginal

Marginal

Central

Central

Marginal

Subsidiary

Welfare state:

Solidarity mode

Solidarity locus

Decommodification degree

Individual

Market

Minimal

Universal

State

Maximum

Kinship/Corporatism/Etatism

Family

High (for breadwinner)

Modal examples USA Sweden Germany

Italy

Classic Social Policy Categorisation

• Personal scope of application

• Allocation criteria

• Benefit formulae

First two filters – not new

Personal scope of application:

• Population• Wage earners• Self-employed• Other groups

Allocation criteria:• Residence• Work record• Contribution record• Membership

Third filter: Benefit formulae

Policy Design• Flat-rate• Earnings-related• Means-tested• Floors• Ceilings• Minimum• Maximum

Policy Outcome• Minimum pension• Maximum pension• Net replacement rates

accross income range (more on this later)

More advanced

than conventional

studies

Other important aspects

• Personal scope of application

• Allocation criteria

• Benefit formulae

• Indexation

• Taxation

• And yet others: type of insurance and organisation.

Indexation

Pension rights Pensions in payment

Denmark Yields Wages, yields

Finland Mix wages/prices Mix wages/prices

Sweden Wages, yields Wages, yields

Netherlands - Wages

Germany Wages Wages

Italy Prices Prices

United Kingdom Wages Prices

Taxation

• Average taxation of minimum and maximum pensions

• Marginal tax rates for increasing pensions

• (Marginal effective tax rates (METR’s))

• Accummulated marginal accrual rates (AMAR’s)

Accummulated marginal accrual rates of net pensions for increasing income, percentage

AMAR’s, %

Denmark -

Finland 35, 32, 28, 25

Sweden 0, 20, 35, 0

Netherlands -

Germany 51, 10, 37, 0

Italy 0, 75, 60, 52, 40, 35, 25

United Kingdom 0, 28, 25,5, 22, 0

Conventional operationalization of welfare state as (in)dependent variable

• Time data– Mile stones, but not whole institution

• Social expenditure data – welfare effort– Function of need, demography and economic

development– Excludes private and fiscal expenditures– Actors’ intentions (efforts) not revealed

Social rights

Social citizenship: the right aspect

• Theoretical roots: T.H. Marshall, W. Korpi, G. Esping-Andersen

• Mostly focus on rights, e.g. Marshall (1950):”the right to a modicum of economic welfare and security to the right to share the ffull in the social heritage and to live the life of a civilized being according to the standards prevailing in the society. The institutions most closely connected with it are the educational system and the social services.”

• Typical operationalisation of social rights:– Social rights:

• Access• Generosity

Social citizenship: the obligation aspect

• Marshall pretty vague: pay taxes, due military service and live the lives of gentlemen

• Few studies include the obligation side to citizenship:– Conditionality

- Penalties and other sanctions

Surgical Precision

• S standard pension:– 40 years of work– Previous income at the

APW level– Single person– FP, pensionstilskott & ATP

• SCIP 2000: 61,8• Scruggs 2002: 60,0• Mix S 2002: 60,0• Old S 2000: 62,6• New S 2002: 51,4 0

10

20

30

40

50

60

70

SCIP Scruggs Mix Old New

The Issue

• Precise and complex theoretical definitions

• Single-point indicators heavily dependant on assumptions

Welfare state often crudely operationalised as (in)dependant variabel

We suggest profiling social rights

Three Ideal Typical Profiles

• Robin Hood: rob from the rich and give to the poor

• Matthew: for whosoever hath, to him shall be given

• Quid pro quo: this for that, something for something

Three ideal typical profiles

0

25

50

75

100

0 0,5 1 1,5 2

Former income (APW levels)

Gen

ero

sity

(N

RR

)

Robin Hood

Mathew

Quid pro Quo

GenerosityNet replacement rates for old age pensions in seven European

countries, percentage of former earnings after taxes

0

20

40

60

80

100

120

140

160

180

0 0,5 1 1,5 2 2,5

Former earnings (APW levels)

Net

rep

lace

men

t ra

tes

(per

cen

tag

e) Italy

Finland

The Netherlands

Sweden

Denmark

Great Britain

Germany

Private pensions, coverage and income contribution

Country Coverage rate Average income contribution

Denmark 95% 24% of income before taxation

Finland 7% for occupational pensions and 15% for individual pensions

6-7% of all pensions

Sweden 90% for occupational schemes and 50% for individual schemes

18% of total income of people aged +66

Netherlands 90% 34% of income after tax

Germany 57% of people covered by 1st pillar are also covered by occupational schemes and 13% make individual provision (Riester)

6% from occupational and 9% from individual

Italy 8% for occupational and 2% by individual Currently negligible

United Kingdom 43% for occupational and 16% for personal 30%

Source: Social Protection Committee (2005), Privately Managed Pension Provision, Brussels.

Matching profiles

• All country profiles are mixes of ideal typical profiles, BUT

• Danish and Dutch profiles closest to Robin Hood• Sweden and UK are lax Robin Hoods in,

respectively, generous and not-so generous versions

• Italy is closest to quid pro quo type• And the German profile is a mix of quid pro quo

and Matthew principles

• In real life countries have different combinations of social policy objectives, that is different combinations of ideal type profiles on social rights, e.g.

• Finland has a Robin Hood profile up to the level of an APW and thereafter it adopts a quid pro quo profile

A summary overview ofold age pension systems

Quid pro quo Mathew Robin Hood

Role of:

State (public), 1st pillar

Market, 2nd pillar

Individual, 3rd pillar

Public pensions,1st pillar:

X

Y

Z

Modal examples

Concluding remarks

In studies on social policy systems one must:

1. STACK: Include all relevant schemes, fiscal system as well as direct benefits, ”private” schemes, cash as well as non-cash benefits

2. PROFILE: Access profiles across incomes, labour market record, family types, etc.

Questions to be solved

• NRR for single in S (new, mix and old) across income range?

• NRR for single in D in 2003 (Grundsicherung im Alter)?

• Possibility of stacking analysis, especially:– Occupational pensions in NL and DK?– Payment for care benefits?