A tale of two pension systems

DOIhttps://doi.org/10.1108/01425450010332569
Published date01 June 2000
Pages286-292
Date01 June 2000
AuthorDeborah R. Cooper
Subject MatterHR & organizational behaviour
Employee
Relations
22,3
286
Employee Relations,
Vol. 22 No. 3, 2000, pp. 286-292.
#MCB University Press, 0142-5455
A tale of two pension systems
Deborah R. Cooper
City University, London, UK
Keywords Pensions, Benefits, United Kingdom, France
Abstract The article compares the major features of pension provision in the UK and in
France. It considers why the UK population appears to be at best indifferent to their system of
provision, when overall it is financially secure, whereas the French system, which is faced with
increasing costs, receives wide support. The significant differences in provision, apart from the
method of funding, are in the level of coverage and the extent of member involvement. The article
concludes that, if the UK system took some steps in this direction, perhaps employees would begin
to perceive pension provision as the valuable benefit it is, and more employers would be
encouraged to introduce, or retain, defined benefit occupational pension schemes.
Introduction
In July 1997, the new UK government passed a budget removing tax credits on
dividend income received by pension schemes. This measure could have the
effect of reducing future retirement incomes by about 10 per cent (Booth and
Cooper, in press), yet it passed without much comment.
In economic terms, pension provision in the UK is a relatively successful
model. Most developed nations are faced with potentially serious financial
problems caused by high levels of unfunded state retirement benefits and a
decreasing support ratio (the ratio of those of working age to those above state
pension age). The UK is an exception, partly due to the low level of state
provision, and partly because the UK has not experienced such dramatic
changes in demography as some other countries. In addition, in aggregate the
UK system is financially secure since it has a large funded sector. The
conventional wisdom is that private funded provision, such as that available in
the UK, is the preferred mode of provision for reducing the burden of retirement
costs. This is the type of provision the World Bank and the IMF encourage in
developing and transitional economies.
France has a very different model of provision from that available in the UK.
In particular, since the majority of retirement provision in France is not pre-
funded, it is faced with significantly increasing costs. Since a 1991 White Paper
on pension reform, there has been a long debate that has shown that the French
are attached to their system, and do not fundamentally challenge the pay-as-
you-go principle (Reynaud, 1997). It is worth comparing provision in the UK
with that in France to see why a system that, economically, appears
unsustainable is so popular, whilst an apparently financially sound scheme
might fail because of indifference.
The UK system
The majority of income in retirement for UK pensioners arises from two
``pillars''. The first is provided by the state, which comprises:
The current issue and full text archive of this journal is available at
http://www.emerald-library.com

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT