Introduction

The debates about the UK pension system have become increasingly informed by comparisons with other systems and by a worldwide debate about the most appropriate system for the future in an increasingly global economic system.This chapter therefore looks at the alternative approaches to pension provision.

The Organisation for Economic Co-operation and Development (OECD) has adopted an approach to the classification of pension systems in terms of the notion of tiers. This facilitates discussion of the alternative ideologies outlined in Chapter One, the concern to operate pension systems as deferred wages and the concern to provide an adequate income for all.

The OECD defines systems in terms of the presence of:

• • a first tier offering universal coverage and providing a redistributive element inasmuch as a concern to prevent people falling below a basic minimum has a redistributive effect;

• • a mandatory second tier using an insurance approach, which may be either defined benefit or defined contribution based, may be funded or ‘pay-as-you-go’ and may be either publicly or privately provided;

• • an optional private third tier.

This approach uses a number of concepts that need to be explored further. Hence, the initial discussion in this chapter will be divided into some considerations about the characteristics of the first two tiers.

The first tier

The OECD shows that the first tier (universally present in the nations belonging to the OECD) has the following variations for mandatory public pensions:

• • social assistance (involving a separate means-tested scheme);

• • basic (flat-rate pensions unaffected by other income);

• • targeted (pensions paying a higher benefit to poorer pensioners and then tapering off for the better off);

• • minimum (like targeted but based upon rules within the second-tier scheme).

There are three crucial issues here, which such a classification leads us towards but does not fully explore:

• • whether the minimum is available to all;

• • where the minimum is located (that is, what level of income is guaranteed);

• • the extent to which effects that may deter self-provision are embedded in the system (here the ‘basic’ pension idea stands out as avoiding this while the others probably do not).