We have fine voices among our fine mature thinkers; among them Derek Scott. Here are comments he has made on this blog; prompted by Andrew Young who he grew with over 60 years ago. The comments are about state and private sector paid us in retirement.
They have both influenced my thinking which neither as fine or mature is nonetheless increasingly “collectivist”
Of old
The fear in the 1960s and 1970s, I think, was not that occupational schemes would literally shrink overnight if the state created a funded earnings-related pension. Rather, policymakers and employers worried that a large national funded scheme would compete with, displace, and eventually replace employer provision.
The argument went something like this:
Many larger employers had already built substantial occupational pension schemes. If employees and employers were required to contribute to a new national funded scheme, there would be less money available for existing occupational pensions.
Over time, employers might decide that the state scheme was “good enough” and reduce or abandon their other provision.
A larger and larger state investment fund would concentrate economic and political power in government hands, something that many business groups and some politicians disliked.
So the concern was about long-term crowding out, not the immediate destruction of private sector occupational pensions.
What actually happened under SERPS was rather different.
Because SERPS was designed with a contracting out option, many occupational schemes expanded their responsibilities instead of shrinking. Employers that contracted out had to provide additional benefits at least equivalent to those forgone under SERPS.
In effect,
SERPS established a benchmark level of earnings-related pension.
Occupational schemes could substitute for that benchmark.
Employers and employees received National Insurance rebates in exchange for occupational schemes absorbing responsibility for SERPS-equivalent benefits.
In that sense, SERPS arguably strengthened occupational pensions, especially defined-benefit schemes, because it effectively made them part of the state’s pension architecture.
Large occupational schemes became larger and more comprehensive.
The irony is that this apparent victory for occupational pensions came at a price. Once many occupational schemes were standing in for part of the state pension, government inevitably became much more interested in tinkering and interfering in their design:
- preservation rights for early leavers;
- guaranteed minimum pensions;
- revaluation and indexation rules;
- survivor benefits;
- actuarial certification;
- reductions in NI rebates
Reductions in debates meant that contracting out changed from being marginally profitable by additional investment of rebates, to being “loss-making” because rebates were no longer cost/value-neutral, and then rebates were eventually removed altogether.
So the occupational pensions sector was not undermined in terms of scale; contracting out often made schemes bigger and potentially more effective.
But it was undermined in a different sense: employer pension schemes ceased to be entirely voluntary and discretionary arrangements, and became quasi-public institutions carrying statutory obligations which became more and more onerous through repeated government and regulatory interference.