The silent pension pillar implosion
| Author | Yves Stevens |
| Published date | 01 June 2017 |
| DOI | 10.1177/1388262717711777 |
| Date | 01 June 2017 |
| Subject Matter | Articles |
Article
The silent pension pillar
implosion
Yves Stevens
Institute of Social Law, KU Leuven, Belgium
Abstract
This article discusses recent trends in occupational pension policy and identifies the rise of a
second policy wave directed towards greater individualisation in occupational pension plans. It is
clear that, at a global level, governments and regulatory offices are promoting the so-called third
pillar as a valuable pension option and that freedom of choice of the individual is a key element in
this process. This individualisation reflects the decreasing involvement of employers in occupa-
tional plans and the increasing attentiveness of governments towards individual retirement
schemes. We ask whether the so-called first and third pillar are pushing the second pillar away and
whether there is a silent pension pillar implosion.
In the article, we describeand analyse recent legislative and regulatory initiatives in six European
countriesto locate the individualisationprocess. We also propose a new paradigm for pensionpolicy
makers in which the so-called pension pillars are abandoned and replaced by an integrated pension
vision leading to a balanced target income in retirement. Inthis integrated vision, there is a legal link
between all forms of pension in a given country. This link is reflected in social and fiscal law.
Keywords
pension policy, individualisation, personal or individual pensions, occupational pensions, silent pillar
implosion, integrated pension vision
Introduction
1
When it comes to pensions, we live in a rapidly changing world. Only one generation ago, people
in many countries could retire with a decent occupational DB scheme often offering annuities. It is
Corresponding author:
Dr Yves Stevens, Institute of Social Law, Blijde-Inkomstraat 19, Box 3409, 3000 KU Leuven, Belgium.
E-mail: yves.stevens@kuleuven.be
1. Methodologically, this interdisciplinary article draws on modern political science and functional regulatory law. It fits
into a series of articles on policy transformation and pension regimes in comparative perspective that have been
published since the mid-1990’s. Any study on pension policies faces serious conceptual and methodological challenges
European Journal of Social Security
2017, Vol. 19(2) 98–117
ªThe Author(s) 2017
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DOI: 10.1177/1388262717711777
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unlikely that the children of today will have similar pension benefits when they retire. Due to the
de-risking process, it is plausible that only statutory pensions or individual pensions will remain.
Occupational pensions whereby employers or branches of industry take up a vital role seem to have
grown less attractive on an international scale. Furthermore, where employers still play a vital role
in occupational pensions, their involvement seems to lesse n in private or individual pensions
because of reduced responsibilities and liabilities.
Individualisation 1.0 and 2.0
Orenstein points out, quite correctly, that the main or key considertion in pension privatisation is to
fund pensions through individual private savings accounts.
2
Increased reliance on these accounts is
a means of funding retirement benefits over time. Private pension savings accounts are thus meant
to achieve several goals that are considered consistent with neoliberal economic policy
3
: They
include
increasing overall savings and economic growth
4
;
providing a more sustainable means of financing pensions in the face of demographic aging;
reducing the role of the state in pension provision, and
giving individuals greater choice and control over retirement decisions.
Numerous authors have pointed out that international organisations such as the OECD and the
World Bank have played an important role in pension privatisation in the last decade.
5
The main
result of this international or transnational campaign is the well-known worldwide decline in DB
plans.
6
DC plans are progressively taking over and some countries, e.g. Italy, even forbid DB
because political science has developed refined methods for studying nation state behavior but not pensions. Law as a
scientific field is normative by nature. Hence this study – like many others in this field – uses definitions that are not
always transnationally accepted. Apart from scientific articles in the social sciences and humanities, recent policy
changes are denoted by website references. This article does not adopt an institutional approach to pension politics. For
this approach, see Immergut, Anderson and Schulze (2007: 933).
2. Orenstein (2008: 180).
3. Ibid.
4. The idea of increasing economic growth through the design of the pension system was clearly advocated by the World
Bank (1994: 402). One of the main objections is that the separation of the objective of poverty alleviation and the
objective of savings into two separate ‘pillars’ leads to higher societal inequality and less redistribution. The World
Bank argued that ‘the savings would spur economic growth, develop new financial institutions and deepen capital
markets’. This has clearly not happened as prdicted. See also Schma¨hl and Horstmann (2002: 336) and Clark (2014).
5. See among others the various titles in Hughes and Stewart (2000: 209). In this book the various authors reflect on the
World Bank proposals from various angles. See also Muir and Turner (2011: 293).
6. The decline is still going on but the major shift has already happened. Indicative is that the number of pension funds has
fallen markedly in many OECD countries over the last 10 years, and the Netherlands, Denmark and the UK have
witnessed the largest shrinkage in percentage terms. In its 2016 ‘Pension Markets in Focus’ report, the OECD reported
that the number of pension funds had decreased in 15 OECD countries and nine non-OECD countries in 2015 compared
with 2005, with 14 of those 15 OECD countries being European. According to the report, ‘The biggest changes,
compared with 2005, occurred in the Netherlands (-60.1%), Denmark (-60.0%) and the United Kingdom (-52.3%).’The
fall in pension fund numbers may have been the result of mergers, closures or acquisitions. On the other hand, some
pension scheme closures may have resulted from difficulties in delivering the terms of contracts or meeting funding
requirements in case of defined benefit (DB) plans. According to the OECD, ‘The 2008 financial crisis and falling
interest rates caused the funding position of DB plans to deteriorate,’ adding that difficulties in meeting funding
requirements may have forced underperforming funds to wind up. (The full report is available at: http://www.oecd.org/
Stevens 99
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