Need to know:
- Some European countries, such as the Czech Republic and Spain, have increased paternity leave to reinforce a focus on gender equal family-friendly policies.
- Poland and Turkey are among the latest European countries to implement pensions auto-enrolment initiatives to help combat the financial implications of an ageing population.
- Larger organisations may already have policies in place that comply with upcoming European Union (EU] directives, for example provisions around carers' leave, because these measures can aid employee attraction and retention.
Benefits strategies implemented on a global scale are becoming more visible across leading multinational employers. For example, energy management and automation organisation Schneider Electric launched a global paid family leave policy across 100 locations from October last year, while clothing retailer Superdry funded a long-term incentive scheme for 4,500 global employees which will run between October 2017 and September 2020.
With this in mind, looking to the UK’s neighbours on the continent for best-practice ideas on benefits reforms or to benchmark Britain’s own offering is not an alien concept. So, what are other European countries doing around benefits provision and are there any potential takeaways for the UK?
Work-life balance across EuropeAccording to research by Sodexo Engage, published in November 2017, 48% of employees value a good work-life balance as the top priority they look for in a workplace, putting the emphasis on employers to embrace all things family friendly firmly in the spotlight. Doug Gerke, manager, global research unit at Willis Towers Watson, says: “The biggest area I’ve seen in terms of reforms across the EU, and across the world in general, is the number of places that are trying to address work-life balance by increasing maternity leave, paternity leave [and] parental leave.”
Scandinavian countries, such as Sweden, have led by example in terms of facilitating a country-wide, family-friendly lifestyle. The country's parental leave extends to 480 days, with 390 of these days paid at approximately 80% of an employee’s full salary and the remaining 90 days paid at a flat rate. Parents are entitled to take up to 240 days each, however, 90 days are reserved exclusively for each parent to encourage gender equality. Sweden also allows its parents to take parental leave until their children are eight-years-old, and provides a legal right for employed parents to reduce their working hours by up to 25% until their child turns eight.
However, a number of recent work-life balance reforms have been centred around paternity leave, says Gerke. For example, the Czech Republic amended its Sickness Insurance Act in order to provide seven days of paid paternity leave, from 1 February 2018. Meanwhile, Spain increased its existing paternity leave provision from 1 January 2017, to provide four weeks of fully-paid leave instead of the previous 13 calendar days
In April 2017, the European Commission launched a new work-life balance directive, as part of its European Pillar for Social Rights initiative to deliver more effective rights for citizens. The Directive on Work-Life Balance for Parents and Carers aims to modernise the existing European Union (EU) legal framework to introduce at least 10 working days of paternity leave for fathers or secondary parents, to be compensated at least at the level of sick pay. Parental leave provision will be enhanced so that the four months of leave are compensated at least at the level of national sick pay, which can vary between 25% and 100% of gross wages, depending on country and job role, according to the Sick pay and sickness benefits schemes in the European Union report, published by the European Union in April 2017. The current directive, on the other hand, makes no provision for pay or income-related benefits, leaving it to member states to decide whether to offer parental leave pay and how much to pay for it. Under the new directive, parental leave will also be non-transferable between parents.
The directive will also facilitate the right for parents to request to take leave in a flexible way, for example on a part-time basis or in a piecemeal way, and the age of the child for which parents can take leave will be increased from eight-years-old to 12-years-old.
In addition, it will introduce five-days of carers’ leave, compensated at least at the level of sick pay, for employees caring for seriously ill or dependent relatives. Lastly, all working parents with children up to 12 years of age and carers with dependent relatives will have the right to request flexible-working arrangements, such as reduced working hours, flexible hours and flexibility in their place of work.
The proposed directive is expected to be discussed by the European Commission this summer. If approved, member states will have two years to transpose the directive into local law.
Many employers, however, will already have these steps covered within existing policies. “A number of things [the directive is] proposing, larger employers are probably arguably doing already," says Gerke. "The ability for smaller employers, and for economies as a whole, to accommodate those changes is going to be the question. Employers have to be cognisant that work-life balance as a whole [has] got to get more accommodating if [organisations are] really going to thrive.”
According to Gerke, other European countries win over the UK in terms of work-life balance provision, due to increased collective bargaining and conversations with employees. However, the UK’s market-based economy does provide more flexibility for employers to be inclusive of working parents, says Gerke. “[The UK is] still not as stringent as it would be like on the continent, and [for] employers that can somehow manage that balance of offering things that will engage [their] workforce and help them balance [their lives] and be productive, it’s a potential win-win,” he adds.
Pension reformsWhen it comes to state pension provision in Europe, the UK is the black sheep, says Tim Reay, treasurer and committee member at the International Employee Benefits Association (IEBA). “The UK is unusual in European terms in that the state pension is very low, so it’s intended to provide a reasonably low level of income but most people would look to top it up,” he says. “Whereas in many European countries, the state pension provides most of the retirement income for most of the population.”
The UK was one of the first European countries to implement the auto-enrolment model from October 2012, to help employees top up state provision via a workplace pension. However, many of the UK's European neighbours are now following suit. For example, Turkey amended its 2001 Law on Individual Pension Savings to require all employees under the age of 45 to enrol into an employer-provided defined contribution (DC) pension plan from 1 January 2017. Although employees must contribute a minimum 3% of their covered earnings into the retirement savings vehicle, employers do not have to contribute. Instead, they shoulder the responsibility for selecting the pension provider, enrolling employees into the scheme, deducting contributions from payroll and managing the opt-out process for employees who take this option.
Germany has also revamped its Company Pensions Act to enable employers to implement DC pension plans for its employees with no minimum benefit or interest guarantees. These new arrangements, which came into effect from 1 January 2018, are only available for employees covered by a collective bargaining agreement and the underlying fund must be operated jointly by trade unions and employers.
However, Reay believes the UK should learn from the Netherlands’ pensions regulations. “Unlike the UK, [it hasn't] run away from defined benefits [(DB)] as rapidly as over here,” he explains. “[It is] more realistic about funding them, so [it is] realising that [organisations] can make a promise but then they can fall on hard times and maybe it’s a better idea for that promise to [mean] that they will do their best rather than [be] a guarantee. In the Netherlands, in extreme cases [of] poor funding, [employers] can actually reduce the benefits that were promised, recognising the fact that the promise was really an intention. [An organisation] will say ‘we will give you this pension but the intention is we’ll do that if we continue to expand, and to grow and to do well’, but with the best will in the world, some [organisations] don’t and they need to be protected from that.”
Poland is also currently working to launch its own form of pensions auto-enrolment, which will allow all employees between the ages of 19 and 55 to be enrolled in an Employee Capital Plan, a form of DC pension arrangement. This would see employers contribute a mandatory 1.5% of pay, employees contribute a mandatory 2% and the Polish government contribute 0.5%. Optional additional contributions will also be available if employees and employers wish to contribute more. The implementation process was due to be staggered by employer size, with proposed launch dates of 1 January 2018, 1 July 2018 and 1 January 2019, however, this has now been postponed. Natalia Zaborovska, group network director at insurance brokerage organisation MAI Central Eastern European (CEE) Group says: “It now should be effective some [time] in 2019.”
So why are European countries now turning to pensions auto-enrolment? It could be due to the ageing population globally, says Zaborovska. According to data from World Population Prospects: the 2017 Revision, published by the Department of Economic and Social Affairs at the United Nations, the number of older people aged 60 years or over is expected rise from 962 million globally in 2017 to 2.1 billion in 2050 and 3.1 billion in 2100. In addition, the population of those aged 60 or above is growing at a rate of 3% per year and Europe's population of over 60s is currently the highest globally at 25%.
“We will have less and less [young people working compared to older people and] there will not be enough workforce to pay for all the people who will be in their retirement. Having the compulsory pension reform where the contributions will be paid on the mandatory basis, it is one of the ways to get this fund for supporting the population in future years,” says Zaborovska.
Updating the pensions directiveThe update of the 2003 Institutions for Occupational Retirement Provision (IORP) Directive, known as IORP II, will affect all countries within the EU when it comes into effect on from 12 January 2019, says Mark Dowsey, senior consultant at Willis Towers Watson. IORP II will place a stronger focus on governance and disclosure, introducing elements such as a fitness and propriety test for those that run pension schemes, and requiring own risk assessments to be carried out. Certain schemes will also be obliged to appoint an internal auditor, which would be a new addition to UK pension requirements.
“Each country will be at a different stage in relation to the directive," says Dowsey. "In some countries, I think they consider [that they are] already compliant with the directive just through national legislation. It will be more change in some countries than others. Obviously [the directive] is talking about occupational pension provision, and there is a limit on the number of European countries that actually have a significant occupational pension market, and in lots of the central eastern European countries, [they do not] really have much in the way of occupational pension provision.”
Luckily for the UK, The Pensions Regulator (TPR) has ensured that the majority of UK pension regulations fulfil the directive’s objectives, so any changes this side of the Channel will be in the form of tweaks rather than major change.
However, Brexit negotiations draw question marks over whether EU directives will actually come to force in Britain, says Dowsey. "How that affects us in the UK, whether that affects us in the UK, will depend very much on the shape of the Brexit negotiation and how that means [the UK will sit] with European legislators longer term," he adds.
Other reforms impacting European employersThe biggest change in healthcare reform hails from Kazakhstan, with the introduction of a compulsory social medical insurance fund, which is designed to pay for health services such as urgent primary healthcare, consultative and diagnostic assistance, and specialist outpatient care. Initially introduced in July 2017, from 1 January 2018 employers are required to deduct 1.5% from each employee’s gross salary to contribute to the fund, explains Madina Iskanova, broker at Kazakhstan-based MOI Insurance Broker. “Before 2017, it was all voluntary," she explains. "We had no compulsory medical health insurance programme.”
Although the first phase of Kazakhstan’s healthcare reform has already been set into action, the next stage, which will involve additional employee contributions to the fund as well as the deduction made by the employer, has been temporarily postponed until 2020.
Meanwhile, Romania has made changes to its social security funding, shifting nearly all of the contributions made by the employer to the employee, as of 1 January 2018. This will increase the tax burden from income and social security taxes for employees from 32.5% to 45%, while social security contributions for employers will decrease from 22.75% to 2.25% of total payroll. “It’s up to employers to decide what to do, whether to put people’s salaries up to try and compensate,” says Reay.
Although benefits provision varies from country to country, it appears all European employers are facing the same or similar benefits challenges, around work-life balance and pensions in particular. As Reay concludes: “Employers shouldn’t be afraid of doing things just because they don’t have to. So many employers look at the law and they say ‘we have to give you so much maternity leave, so much flexibility, this is what we’ll do’. [They] think that the law is a target; the law is just a minimum.”
