Chapter IV
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
This chapter presents the data gathered from the published articles, scholarly studies and surveys conducted by different groups and institutions relating to the need for a state pension system in the United Kingdom behind the pressures posed by being a member of the European Community. Part one presents a survey concerning the percentage of expenditures by pension beneficiaries from the state. This will be evaluated in the context of the amount of pension that is given by the government. Further, trends in state pension scheme will be outlined and analyzed. Part two presents the impact of the European community and its member states on the state pension policy of UK. The second part presents the assessment of the programs instituted by the EC in terms of policy integration and conferences. Part three dwells on the general perception of the UK state pension beneficiaries in lieu with the policies and the EC. It seeks to measure the satisfaction of the pension beneficiaries in decision-making done by the UK government vis a vis the perceived influence of the pensioners on the EC.
The UK Pension Scheme: Summary of Findings
The state pension system is becoming increasingly complex as the Government brings in targeted benefits to try to overcome pensioner poverty. The amount of means testing associated with these benefits has steadily increased and is now a small industry in itself. Those who are still in work and can afford to save for their retirement are normally saving into occupational, private or stakeholder pension schemes or are making other kinds of financial provision.
There are three issues that the UK State Pension System confronts: the inability of the state pension policy to adequately cover basic necessities, the reduced appending of firms on pensions and retirement benefits and the lack of confidence of retirees that their pension can cover their expenses in older age.
Virtually all pensioners receive the state retirement pension according to the National Statistics (1998). In addition, in 1999-00, 12 per cent of pensioners were also receiving income support along with their basic state pension (Office for National Statistics, 1998). This represents a fall of six percentage points since 1981-82. The basic state pension rose by £21 for single people and £33 for married couples between April 1990 and April 2000, to £67.50 and £107.90 per week respectively and the equivalent of 44 per cent. However, after allowing for inflation (as measured by the retail prices index), these changes represent rises of £6 for single people and less than £7 for married couples. Over the same period, average earnings in Great Britain (as measured by the average earnings index) have risen by 62 per cent (Office for National Statistics, 1998).
In 1998 the county, unitary authority, council or board with the highest proportion of people of state pension age or over was the seaside area of Conwy in Wales, where over one in four people were over state pension age (Office for National Statistics, 1998). This compares with an average of just under one person in five for the United Kingdom as a whole (Office for National Statistics, 1998). In England there are also high proportions of older people in some of the counties along the south coast, including the Isle of Wight, Dorset and Sussex (Office for National Statistics, 1998). Of the four countries of the United Kingdom, Northern Ireland has the youngest population with the highest proportion of children and the lowest proportion of older people.
THE INADEQUACY OF STATE PENSION
Employers see an overall ‘lighter touch’ approach to pension legislation and regulation as the most important government response to the Pickering proposals. The survey result below summarizes the responses of the population with regards to their expenditure scheme using their pensions from the state.
Expenditure of retired households:1 by whether or not mainly dependent on state pension, 2001/02
United Kingdom £ per week2
one adult 2 adults
State Other State Other All Retired Households
Pension Pension
Food and non-alcoholic drink 20.60 23.10 36.80 43.00 32.10
Recreation and culture 11.40 24.40 28.00 45.90 29.20
Housing, water and fuel 19.00 27.80 26.50 29.70 26.30
Transport 4.50 18.80 20.50 41.60 23.50
Miscelleous goods and Services 8.30 21.30 15.20 24.70 18.80
Household goods and services 9.90 18.00 14.50 27.70 18.20
Restaurants and hotels 5.40 9.50 10.80 21.20 13.30
Clothing and footwear 5.20 7.70 8.20 16.10 10.20
Alcohol and Tobacco 3.20 4.20 6.30 8.10 5.90
Communication 4.20 5.30 4.60 6.20 5.60
Health 1.70 3.20 3.70 6.30 3.90
Education 0.00 0.90 0.00 0.40 0.40
Other expenditure items 7.60 26.80 18.30 31.90 22.60
All household expenditure 101.00 191.00 193.40 302.90 209.90
Source: Expenditure and Food Survey, Office for National Statistics
Retired households also spent different levels according to whether there were one or two adults and whether the household was mainly dependent on state pensions. Among households mainly dependent on state pensions, those with two adults had an average weekly expenditure of £193, nearly double the expenditure of £101 for those comprising a single adult. For households mainly dependent on sources of income other than state pensions and benefits, the average weekly expenditure of a two adult household was £303 which is about one and a half times that of comparable single pensioner households. However, the pattern varies across the different spending categories. There is a much smaller difference in spending on housing, water and fuel between single and two adult households for both group.
To further prove this point, a survey of MORI was conducted showing that there is a pessimistic view on retirement with reliance on pension alone.
LACK OF CONFIDENCE
Survey on pensions by MORI, claims that seven out of ten people have little or no confidence about their income in retirement (Kuo, 2002 ). Nor have they given any thought to saving for their old age. More worryingly 43% of those aged 25 to 34 said they either could not afford to save or had not considered putting money aside for their pensions (Kuo, 2002 ). It would also appear that many people still believe that their state pension will be adequate to cover their income needs in retirement.
Findings shows that the state pension scheme is not altogether viewed in an optimistic light. The first relates to the lack of confidence that the majority of people have concerning their income in retirement. This could in part be attributed to the misunderstanding of annuities. As the law stands at present everyone with a personal pension will need to buy an annuity with the bulk of the money they’ve saved in their pension funds. This annuity guarantees pensioners a regular income for the rest of their lives. But, with lower long-term interest rates and people generally living longer, the annual income that annuities can produce has declined in recent years (Kuo, 2002 ).
The MORI survey also found that 43% of those aged 25 to 34 could not afford to save for their old age (Kuo, 2002 ). It is undeniable that some people will find that the income from their principal source of employment will be inadequate. But to put that figure at 4 in 10 people seems a tad unrealistic (Kuo, 2002 ). A more likely explanation could be the unwillingness of those people surveyed to save for their old age, but this has more to do with allocating scare resources than affordability. Careful budgeting should allow almost any wage earner to put aside 15% of their income towards some sort of savings plans in preparation for retirement (Kuo, 2002 ).
Further, this finding was supported by MacKay and Smeatson by concluding that old people who have reached the retirement age still opt to work to support themselves. The report by MacKay and Smeaton (2003) shows that since 1990, employment rates for men from the age of 65 have flattened out and for women from the age of 60 had risen slightly. Part-time opportunities appeared to be particularly important for post-pension stage workers. Continuing to work was also linked to maintaining or improving living standards, for the period when the work ends. There was considerable evidence that those working past the pensionable age had higher rates of savings and were less likely than non-workers to be receiving income from an occupational pension. Older workers were found to have relatively high levels of job satisfaction, and relatively few of the men wanted to stop working. The clear majority of those working after receiving state pension had remained in the same job as before (Mc Kay, and Smeaton, 2003).
FINDING ALTERNATIVES: EMPLOYERS’ DILEMMA
An increasing proportion of people are making their own provision for their old age according to the National Statistics Office (1998). Two ways of doing this are through occupational and personal pension schemes (Office for National Statistics, 1998). Occupational pensions are schemes set up and provided through people’s employers, while personal pension schemes are pensions which people set up independently, into which they make payments prior to their old age. According to the FRS, among employees, three-fifths of men and half of women in Great Britain contributed to either an occupational pension or a personal pension (or both) in 1999-00. Occupational pensions are not available to the self-employed who are less likely than employees to contribute to a private pension – around half of self-employed men and three-tenths of self-employed women contributed to a pension scheme.
With now over half of the country’s final salary pension schemes closed to either new entrants or future accruals, there is an “essential need” for new incentives to be offered, going beyond simplification, to bolster occupational pensions in the forthcoming Pensions Green Paper (Robertson,2002). This is one of the key conclusions of the 2002 Pension Trends Survey preliminary report published today by the Association of Consulting Actuaries (ACA), whose members advise thousands of UK pension schemes.
The survey, conducted in August and September 2002, attracted responses from 336 firms, selected on a random basis, employing 1.8 million people. Employers responding to the survey ranged from those with under 10 employees through to those employing upwards of 50,000 staff.
The key findings of this preliminary ACA survey are as follows:
- 32 per cent of employers are ‘at present’ reviewing their occupational pension arrangements (a further 35 per cent have reviewed their scheme in the last year).
- 42 per cent of employers say they are trying to reduce spending on pensions and 51 per cent are looking to reduce forward pension liabilities.
- 55 per cent of final salary pension schemes are now either closed to new entrants (46 per cent) or future accruals (9 per cent).
- Employer contributions into final salary schemes have increased by 14 per cent in the last year.
- Contributions into occupational money purchase schemes generally are not increasing to offset the effect of deteriorating investment returns.
- Employer and employee contributions into final salary schemes average 17.6 per cent and are twice the average level of contributions paid into money purchase arrangements.
- Fewer than 1 per cent of employees based at firms covered by the survey have joined stakeholder schemes (46 per cent of stakeholder schemes have no members at all).
Employers see increased incentives (tax or otherwise) as the most important policy priority to encourage employers to sponsor occupational arrangements With now over half of the country’s final salary pension schemes closed to either new entrants or future accruals, there is an “essential need” for new incentives to be offered, going beyond simplification, to bolster occupational pensions in the forthcoming Pensions Green Paper (Robertson,2002). This is one of the key conclusions of the 2002 Pension Trends Survey preliminary report published today by the Association of Consulting Actuaries (ACA), whose members advise thousands of UK pension schemes.
The survey, conducted in August and September 2002, attracted responses from 336 firms, selected on a random basis, employing 1.8 million people. Employers responding to the survey ranged from those with under 10 employees through to those employing upwards of 50,000 staff.
The key findings of this preliminary ACA survey are as follows (Robertson, 2002):
- 32 per cent of employers are ‘at present’ reviewing their occupational pension arrangements (a further 35 per cent have reviewed their scheme in the last year).
- 42 per cent of employers say they are trying to reduce spending on pensions and 51 per cent are looking to reduce forward pension liabilities.
- 55 per cent of final salary pension schemes are now either closed to new entrants (46 per cent) or future accruals (9 per cent).
- Employer contributions into final salary schemes have increased by 14 per cent in the last year.
- Contributions into occupational money purchase schemes generally are not increasing to offset the effect of deteriorating investment returns.
- Employer and employee contributions into final salary schemes average 17.6 per cent and are twice the average level of contributions paid into money purchase arrangements.
- Fewer than 1 per cent of employees based at firms covered by the survey have joined stakeholder schemes (46 per cent of stakeholder schemes have no members at all).
- Employers see increased incentives (tax or otherwise) as the most important policy priority to encourage employers to sponsor occupational arrangements.
- Employers see an overall ‘lighter touch’ approach to pension legislation and regulation as the most important government response to the Pickering proposals.
The report notes that given the much lower investment returns being achieved, together with the improvements in mortality, it is worrying – in terms of pension benefits emerging – that contributions into the range of money purchase arrangements generally are not rising to reflect these changed circumstances. The emerging pensions offered by money purchase arrangements at the average levels of contributions reported in the survey (between 8 to 9 per cent of earnings) are likely to disappoint members, says the ACA.
SYNTHESIS
These findings indicate that there are still improvements that ought to be undertaken in order to solve the dilemmas faced by the UK government. State pension was outlined and it was revealed that there is an inadequacy in terms of covering for the expenses expected at old age. These in lieu with the assertion that policies had been formulated in lieu with the European Community’s influence on the policy initiatives by the UK government. The second part will discuss the influence of the EC in the state pension policy by the UK.
CROSSING SOCIAL BOARDERS: EC INTERVENTION Recent rulings of the European Court of Justice on issues such as health care and Union citizenship demonstrate that Community law reaches even further than previously assumed, hinting towards the evolution of a new “supranational” model of social solidarity (Social Welfare and EU Law, 2003). Policy contributions from the European Commission on topics like the modernization of pension systems, and recent political discussions within the Council of Ministers on reform of the Social Security Regulation, further challenge traditional assumptions about the welfare responsibilities of individual countries (Social Welfare and EU Law, 2003).
There is now general agreement on the need for structural reforms in Europe both at national and community level (Report from the Commission, 2000). According to the report by the Commission on European Communities member states’ own national reports are submitted in the EC to demonstrate how much progress they are making with economic reform domestically. As a result important policy initiatives have already been taken to change Europe’s regulatory environment in ways that conform with certain fundamental principles- to establish a more dynamic business environment. Further, to embrace the new knowledge-based economy and at all times be sensitive to the priorities of Europe. Such initiatives include the strategy for removing remaining barriers to trade in services, regulatory simplification, and the opening up of network industries to more competition (Report from the Commission, 2000).
The Social Protection Committee (SPC) was mandated by the Lisbon, Feira, Nice and Stockholm European Councils to undertake a study of the sustainability of pensions (The Social Protection Committee’s report on the sustainability of pensions, 2001). The Document on The Social Protection Committee’s report on the sustainability of pensions, SPC’s final report, sets out the general principles of and the challenges facing pension systems in Member States of the European Community. Although it does not offer precise proposals, it identifies three challenges that the SPC considers need to be met if pension systems are to remain sustainable in the long term (The Social Protection Committee’s report on the sustainability of pensions, 2001): safeguarding the capacity of pension systems to meet their social aims; maintaining the financial sustainability of pension systems; and increasing the ability of pension systems to respond to the changing needs of society and individuals. The report suggests that (The Social Protection Committee’s report on the sustainability of pensions, 2001) the growing imbalance between the number of those in employment and the number of pensioners will need to be addressed in any strategy for improving the sustainability of pension schemes. As noted above, the report provides no specific proposals for reform of pensions, but it does call on Member States to co-ordinate their efforts and exchange views and information on enhancing the sustainability of their pension schemes, in an approach it calls the “open method of co-ordination.”
The UK Government broadly welcomed the document, which it says recognizes the diversity of approaches adopted by Member States, and emphasizes the fact that pension systems are the responsibility of individual Member States (The Social Protection Committee’s report on the sustainability of pensions, 2001). The Government particularly welcomes the recognition that the report gives to the work being undertaken by the Economic Policy Committee and the Employment Committee on financial sustainability and employment. open method of co-ordination, while having reservations about what it sees as an “ambitious proposed timetable and the heavy, bureaucratic nature of the process proposed” (The Social Protection Committee’s report on the sustainability of pensions, 2001).
The Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach (2001) document supported national strategies for safe and sustainable pensions through an integrated approach document sets out proposals for improving coordination between Member States in modernizing pension systems (The Social Protection Committee’s report on the sustainability of pensions, 2001). The EC Minister says the document: “outlines a process that would require the setting of common objectives, translating these objectives into national policy strategies and finally, as part of a mutual learning process, periodic monitoring on the basis of commonly agreed and defined indicators. The document suggests potential objectives centered around three main areas: adequacy of pensions, financial sustainability of public and private pension schemes and modernization of pension schemes (The Social Protection Committee’s report on the sustainability of pensions, 2001).
The Minister of State for Work at the Department for Work and Pensions (Mr. Nicholas Brown) asserts that the UK Government would like to see sustainability as the overarching objective for pension systems, together with greater recognition of the importance of keeping people in the labor market for longer (Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach, 2001). Among the objectives suggested by the Commission, the UK would add an objective on the portability of pensions and the completion of the single market in financial services. Work on the adequacy and sustainability of pensions is currently being taken forward by both the Economic Policy Committee (EPC) and the SPC. The UK has been strongly supportive of moves to ensure the longer-term financial sustainability of pension systems in the Member States through the work of the EPC. The Commission proposal recognizes the importance of both committees jointly proceeding with work on pensions. This is in line with UK Government policy (Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach, 2001).
Pension systems are clearly the responsibility of individual Member States. However, the UK government recognizes that there may be some benefit in requiring Member States to exchange information on their pension provision so that best practice can be disseminated (Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach, 2001). The process for doing this needs to be flexible and should not impose unnecessary burdens on Member States (Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach, 2001). The Government’s reservations that the Commission has proposed a process and timetable that may be “ambitious”, “heavy” and “bureaucratic”, (Commission Communication: supporting national strategies for safe and sustainable pensions through an integrated approach, 2001)and provides support the Government’s efforts to make the approach as flexible as possible.
AGE, had been in support of the UK’s and EC’s member states integrating and forming a pension scheme that would be deliberated in the community level. They espoused however, that the individual states must still be taken into consideration in the policy-making. AGE, the European Older People’s Platform, follows with interest the development of an integrated approach at EU level to the development of national strategies for safe and sustainable pensions. It believes that any coordination of EU Member States’ pension and retirement income policies should be planned according to the need for solidarity between generations, including present and future pensioners in the EU. The projected growth in the proportion of older people in the EU’s population over the coming decades will raise a number of issues concerning the sustainability of public pension schemes and public finances in general (European Older People’s Platform, 2001[MD1]).
The AGE stresses in their platform (2001) that there should be an insurance of adequate pensions. the key objective of pension reform must be to ensure access to an adequate old age pension for everyone in the European Union. Further they stress that an integrated strategy must be done. Pension reform must not be seen in isolation but must be linked to strong policies for employment and social inclusion, and against discrimination (European Older People’s Platform, 2001[MD2]).
SYNTHESIS
The collated surveys and studies show that the UK government addresses the problems of the UK state pension policy in two fronts: at the national level and in the EC level. It was shown that the UK government couldn’t formulate policies without the consultation and deliberations in the EC level. The community pressure by the EC does not involve harsh actions or sanctions but rather, it stems from the cooperative nature of every state in participating and thus moving together in the same direction for the greater benefit of all.
Chapter 5
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
Summary
The UK state pension system is multi-faceted; it is a dynamic interaction by social, economic and citizen considerations. Moreover, it is embedded in the context of a tight community that strives to attain integration not only economically but also politically. Thus, the UK government does not operate on an international vacuum, an increasing trend is seen towards policy integration.
The European Union, does indeed make a difference-even in Germany, France, and the United Kingdom. In many cases EU rules and regulations incompatible with domestic institutions have created pressure for national governments to adapt (Cowles and Risse, 2003). The study showed that conditions under which this “adaptational pressure” has led to institutional change in the member states leading to a change in the UK state pension system.
The link between Europeanization and regionalization of the nation state is no longer contested. The concrete impact of European integration on the territorial structures of the member states, however, is still highly controversial. Whereas some authors suggest that regions might supersede the nation state as the most important political entity of European integration, a series of comparative studies present rather ‘skeptical reflections’ on such a ‘Europe of the Regions’ (Boerzel and Lankowskei, 2003).
The more European rules and regulations challenge the domestic distribution of power between domestic actors, the higher the pressure for adaptation and the more likely domestic institutional change. Domestic institutions entail informal understandings about appropriate behavior within a given formal rule-structure. These collective understandings – the institutional culture – determine the dominant strategy of domestic actors by which they respond to adaptational pressure in order to redress the institutional balance of power and, thus, either prohibit or facilitate adaptation (Boerzel and Lankowskei, 2003).
Moreover, the social policies of UK are also greatly influenced by the EC. Almost all policies are subject to the screening of all members’ state as the attempt to harmonize policies is being intensified. Thus, the state pension system is not only connected but is embedded in the social policies of UK which in turn is entrenched in the EC.
The Europeanization of the UK Pension System
The transfer of social policy competencies largely drives the process of Europeanization from the member state to the European level (Boerzel and Lankowskei, 2003). This is specially apparent in the state pension system. While it is still arguable if there can be an EC pension policy, the impact of the EC on the UK pension policy is undeniable. In the European Treaties, the member states conferred the European Union policy-making powers in a wide range of policy areas reaching from social regulation to macro-economic stabilization (Boerzel and Lankowskei, 2003).
A cooperative strategy which aims at the compensation of regional losses of power through co-decision rights in the formulation and representation of the national bargaining position in European decision-making as well as a cooperation in the implementation of European policies at the domestic level, presupposes the cooperation of the regions with each other and the central state in a multilateral framework to coordinate a joint position.
Recommendations
Even though the researcher was able to evaluate the main purpose of this study, there are still some areas that could be further improved on.
1. Even if this would take more time and effort, the researchers believe that this study would have been better if a research-based survey would have been done in lieu with the impact of EC in the state pension system.
2. The researcher suggests that for future researchers doing the same topic is to incorporate with the interview method a different method of data gathering such as the focused group discussion method and additional interviews to people at the other end of the study, which are the policy-makers and the pension beneficiaries. This may serve as a better alternative because this will enable them to get first hand responses and be able to clarify their answers. This will make the discussion more credible.
CONCLUSION
UK’s social policies particularly the state pension system is largely influenced by the European Community due to the integration that is espoused in the region. While this may be the case, the pension system still leaves a lot to advance in terms of its ability to secure the retirement of the elderly. The EC influence on UK state pension policy is not negative but rather, it helps the country by providing other strategies and methods that could be utilize for the betterment not only of the pension beneficiaries but also on the future members of the workforce.
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