U.K. Emphasizing Private Provision Of Pensions

By Lisa S. Howard

LONDON EDITOR

LONDON--The United Kingdom government is putting more emphasis on private provision of pensions to help redistribute the limited amount of government monies available, said a European pension products specialist.

"Those most in need likely will get the greatest support from the state in the future and those less in need and more able to fund for themselves ultimately will get less from the state," said Joe Green, head of European pension developments for the Prudential Corp., the London-based insurer.

An aging population and a shrinking labor force is creating funding problems for social programs in the U.K. and throughout Europe.

As a result, there is a growing recognition that industry and government must find joint solutions to the coverage problems, said Mr. Green in an interview.

In fact, the first step toward a public-private partnership will be taken shortly when the U.K. government releases a consultative document on long-term care, according to Mr. Green.

The issue is to what extent will the government encourage insurance as opposed to savings products, he said. One example would be using money accumulated under private pension plans for funding long-term care, he said.

The government has looked at various models from the United States, Singapore and New Zealand, Mr. Green said. In addition, U.K. government representatives also looked at Germany where compulsory saving for long-term care is now required.

Across Europe, he said, countries are very different in how they're structured to support private pension provision, he said.

Some countries have very substantial levels of state benefits, he said, which is one of the reasons that countries such as Belgium, France and Italy have been taking slow steps to cut back on state benefits and taken a lot of political heat in the process.

Other countries, such as the U.K., Ireland and the Netherlands are moving more quickly to a public-private partnership, he said.

"The Netherlands is a good model," Mr. Green said, noting that the Dutch system provides a good example for the rest of Europe. "It has a manageable basic state pension, it has a high level of occupational pensions, which all seem to be working fairly well."

Occupational pensions are company-provided pensions, he said.

The Netherlands' biggest public expense issue was in the area of short-term and long-term disability, he said. Consequently, he added, the Netherlands has privatized a lot of these benefits, enabling the government to cut down its spending in those areas.

This is currently providing huge opportunities for insurers in that country as well, he said.

At the same time, retirement isn't currently a problem for the Netherlands, so there haven't been any moves to alter its heavily occupational-based retirement system, he said.

In contrast, the issues for the U.K. government are long-term care and pensions, he said. "We know the government would like to privatize long-term care and that will be debated first," Mr. Green said.

He predicted the U.K. government will set up a tax efficient framework, "which will enable people through a combination of savings and insurance to fund for long-term care."

The U.K. government also sees pensions as an issue, he said, and would like to get rid of the state earnings related pension scheme (known as SERPS), he said.

The government also would like to redistribute the basic state pension, which is a flat rate pension that everybody receives, he said, to give more to people on income support. "One of the key debatable issues is whether some form of means testing for a basic state pension will be required, similar to the German system."

In the run-up to general election next year, however, it's unlikely the present government will announce any radical changes, he said.

"Whatever the outcome of the partnership between state and private pensions, it's likely that the way forward will see more reliance on defined contribution solutions to private pension provision, rather than defined benefits, which dominate the scene today," he said.

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