Pension Systems after the Storm: France and the United Kingdom in a Comparative Analysis

By Lagoutte, Christine; Reimat, Anne | The European Journal of Comparative Economics, July 1, 2012 | Go to article overview

Pension Systems after the Storm: France and the United Kingdom in a Comparative Analysis


Lagoutte, Christine, Reimat, Anne, The European Journal of Comparative Economics


Abstract

All pension systems have been affected by the financial and economic crisis, although in different ways. This paper analyses the effects of the crisis on pension systems and the resulting responses and changes, and offers a theoretical interpretation of these responses. This interpretation focuses on the relationships between pension systems and broader socioeconomic institutional configurations, and between pension systems and other core, formative economic institutions, in order to explain the effects of the crisis, the nature of the reforms adopted by governments and the future outlook for pension systems.

From this perspective, a comparative analysis of two pension systems with different approaches, the French system that relies heavily on social insurance and the primarily market-based British system, appears relevant in the interest of assessing how similar pressures and disruptions can produce different impacts and responses.

The analysis shows that these pension systems' responses to the crisis have preserved the main institutional features of each configuration, and even reinforce some of them. Nevertheless, it appears that both systems are converging toward an institutionalization of a twofold social welfare system. The French system attempts to preserve the pension rights of core-workers on a mandatory social insurance basis, while non-standard workers benefit from tax-funded social solidarity measures. In the British system, the State intervenes to both extend secure pension fund enrolment to low income groups and to reinforce safety nets for lower income retirees.

Finally, the recent changes have not called into question the fundamental logic of either pension system, although concerns are on the rise in respect of their future adequacy and sustainability.

JEL classifications: H55 Social Security and Public Pensions, P10 Comparative Economics Systems, P52 Comparative Studies of Particular Economies

Keywords: welfare state, social security, pension systems, financial crisis, institutional interactions

1. Introduction

All pension systems have been affected by the financial and economic crisis, although in different ways. This paper analyses the effects of the crisis on pension systems and the resulting responses and changes, and offers a theoretical interpretation of these responses. This interpretation focuses on the relationships between pension systems and broader socioeconomic institutional configurations and between pension systems and other core, formative economic institutions, in order to explain the effects of the crisis, the nature of the reforms adopted by governments and the future outlook for pension systems.

From this perspective, a comparative analysis of the reactions of the French and British pension systems, with their different approaches, is of interest for several reasons.

Firstly, they are at opposite ends of the European spectrum of pensions. The French system relies heavily on mandatory social insurance and pay-as-yougo schemes, and continues to involve a large number of separate pension schemes. The British system is essentially market-based and relies on personal savings and corporate pension schemes, in addition to a weak basic public scheme. Comparative literature on the subject of welfare states often sees the French system as an ideal type conservative-corporatist welfare regime and the British system as an ideal type liberal welfare regime.

Secondly, with regard to comparing the reactions of the pension systems after the crisis, it is important to select countries that, like the UK and France, are in relatively similar demographic positions in terms of ageing populations, such that demographic pressures come to bear on them in the same way.

Thirdly, and from a broader point of view, the entire economies of France and the United-Kingdom appear quite different. The oft-cited Variety-of- Capitalism (V-of-C) has promoted a dichotomist distinction between Liberal Market Economies (LMEs, as in Anglo-Saxon countries) and Coordinated Market Economies (CMEs, of which Germany is the most common example) (Hall and Soskice, 2001). …

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