Labour Market Flexibility and Pension Reforms: Flexible Today, Secure Tomorrow?, edited by Karl Hinrichs and Matteo Jessoula

Palgrave Macmillan, 2012, xviii + 262 pp, hbk, 0 230 29006 8, £55

Time was when a lifetime of full-time employment would be followed by retirement on a contributory state pension supplemented, for the fortunate, by an occupational pension, and, for the less fortunate, by a means-tested state supplementary pension. Both employment and retirement income were relatively secure. Employment is now less secure, and increasing numbers of people experience part-time employment, short-term contracts, and periods of unemployment, making ‘flexicurity’ an important social policy aim: flexible labour markets accompanied by secure incomes and public services.

The chapters in this book are the result of a European Commission funded research project on the prospects for income security in old age in a Europe increasingly characterised by insecure employment and therefore flexible employment patterns. The problem that policy-makers and the book’s authors face is that many state and occupational pension schemes are posited on the now outdated notion of the ‘standard employment relationship’ – lifelong, stable full-time employment. Such schemes, whether state, occupational, or private, are funded by employee and employer contributions. Less stable employment patterns mean fewer and lower contributions and thus less income security in old age.

Each of the book’s chapters studies the current pension structure, labour market position, and recent reforms, in a particular country. There are chapters on Germany, Italy, Poland, Switzerland, Denmark, the Netherlands, and the UK. The editors conclude that these countries fall into three groups and that each group exhibits a particular pattern of recent reforms. Countries that previously relied for retirement income on state contributory pensions have raised contribution rates and/or subsidized the insurance fund out of general taxation, and have now introduced private and occupational pension schemes. In countries with already more than one of the three ‘pillars’ of pension provision – state, occupational, and private – the emphasis has tilted towards private and occupational schemes, and now towards compulsory enrolment in funded portable defined contribution schemes which blur the boundary between private and occupational pensions. Eastern European countries are seeing both the development of contributory public schemes and a transition into privately funded pensions.

On the basis of the research results presented in the individual chapters the editors conclude that in segmented labour markets (for instance, in Germany, where ‘insiders’ still experience considerable employment security, and ‘outsiders’ highly insecure employment) pension provision ‘dis-integrates’: that is, it is worse at poverty prevention and income maintenance for those experiencing more fragmented labour market participation than for those in more secure employment; that in countries with more homogenous labour markets (as in the UK, where employment insecurity is more equally shared across the labour market) there are integrating elements in the pension system; and that where the labour market is highly homogenous, as in Denmark, the pension system is highly integrated. Central to the integrating characteristics of Denmark’s and the Netherlands’ systems are their ‘generous basic pensions based on residence … These schemes are crucial in preventing poverty in old age, especially for workers with interrupted carers or on an atypical contract, as well as women, who mainly work part-time’ (p.244). What isn’t entirely clear is what’s causing what: Does a more or less homogenous labour market result in a particular pattern of reforms, or is there some third factor causing both the labour market type and the reform pattern?

In the UK we might soon be moving in a more universalist direction. If we want to prevent poverty in old age then the evidence of this book suggests that it is in this direction that we should move, because it is in this direction that flexicurity can be achieved. The more general lesson to be drawn from the book is that poverty prevention and income maintenance in old age will be best served across Europe by universal state pensions accompanied by compulsory enrolment in portable funded defined contribution schemes to which both employer and employee contribute.

This is a well researched, well edited, and clearly written book, and anyone with anything to do with pensions policy should be reading it.