Content uploaded by Bernhard Ebbinghaus
Author content
All content in this area was uploaded by Bernhard Ebbinghaus on Jul 20, 2015
Content may be subject to copyright.
A preview of the PDF is not available
Taming pension fund capitalism in Europe: collective and state regulation in times of crisis
Abstract and Figures
The recent financial crisis has led to major losses among many pension funds across Europe, showing the problems in shifting responsibility for old-age income to private actors without sufficient regulation. The impact of the crisis on pension funds and future retirement benefits depends on good governance and effective regulation. There is a large cross-national variation in pension fund capitalism and its regulation across Europe. We compare private supplementary pensions in six countries (Denmark, Germany, the Netherlands, Sweden, Switzerland and the UK) and analyse how these different systems have reacted to the crisis. Whereas higher contributions and delayed indexation may be temporary measures, more important are the long-term consequences for individuals, in particular the diminished rates of return leading to lower pensions. The sponsoring firms, pension funds, the social partners and the state therefore need to adapt investment strategies and strengthen the supervisory mechanisms.
Figures - uploaded by Bernhard Ebbinghaus
Author content
All figure content in this area was uploaded by Bernhard Ebbinghaus
Content may be subject to copyright.
... For the case of Dutch pension governance, this represents an important infringement of the institutional logic that characterised the Dutch pension system since 1908. Being pushed from boards to accountability bodies and supervisory functions, employers and beneficiary representatives effectively lose decision-making power (Ebbinghaus and Wiß 2011). As a result, the rise of expert governance undermines the input legitimacy of the Dutch pension system. ...
Valuation devices and institutional change are key aspects of financialisation, but have been largely separated in the literature. This article explores the causal link between both concepts. We draw on the linked ecologies framework to argue that financialised valuation, such as market valuation of assets and liabilities, creates opportunities for financial experts to influence policy processes. Making use of their institutional position, experts frame policy problems to advance further financialisation as a solution. So doing, they perform essential boundary work to tie authority over financial knowledge to their social position as financial market actors. The result is a process of endogenous institutional change, whereby financial experts increasingly displace other actors in governance arrangements. We illustrate this argument providing a case study of pension fund governance in the Netherlands. There, financialised valuation requirements led to a crisis of pension funding, to which policymakers responded by strengthening experts’ positions on pension fund boards, thereby eroding century-old corporatist institutions. We show how the infrastructural entanglements between financial markets and the state in the Dutch pension system not only benefited financial actors’ institutional positions, but also point to limits of financial agency as the state increased its own capacity over a formerly corporatist domain.
... Hence, there might be a higher vulnerability to financial market crises in liberal market economies with high equity exposure (Wiß, 2015). It is suggested that pension funds, the social partners and the state need to adapt investment strategies and strengthen supervisory mechanisms (Ebbinghaus & Wiß, 2011). ...
This paper analyses the impact of public pension expenditures and pension funds’ assets as well as its paid‐out benefits on macroeconomic volatility. We use panel data for 35 OECD countries for the period 1980‐2018 and apply a set of state‐of‐the‐art econometric estimators. Our results suggest a smoothing effect of public pension expenditures on per capita consumption growth volatility and overall macroeconomic volatility. We however do not find such effects coming from pension funds’ paid‐out benefits. In contrast, the effect of pension funds’ assets depends crucially on the level of economic development: there is a dampening effect on per capita investment growth volatility in less developed countries; while a volatility‐boosting effect in most developed countries.
... Indeed, the third wave of questioning has focused on the core value of corporatist hybrids, that is, the idea of producing collective DB pensions under private control with high degrees of funding. In the Netherlands, which relies on full funding, especially the financial crises of 2001 and 2008 generated strong reactions from government bodies that questioned the independence of pension funds (Ebbinghaus and Wiß 2011). While the solutions to problems caused by financial crises have thus far, in effect, taken the form of a Finnish-style shift towards notional defined contribution pensions (Hassel et al. 2019), as best illustrated by the most recent Dutch reforms (van Wijk and Preesman 2019), increasing the importance of individual responsibility and bearing of risks has slowly, over time, become the norm in policy responses to perceived crises (van Oorschot 2006). ...
The aim of this study is to investigate how multiple values in non-profit hybrid
organisations influence the adoption of management accounting practices. The
empirical analysis centres on hybrid organisations established as co-production and
co-management initiatives in social care. Pragmatic constructivism, centred on the role
of values, informs the empirical analysis. This research shows that management
accounting practices can develop without conflicts when only some actors are
interested in management and their values predominate, despite the coexistence of
multiple and conflicting values. However, in this situation, where conflicts are
eliminated, the validity of accounting is compromised, as it does not represent all
values. The evidence of this lack of validity is clear when considering the poor
development of management accounting practices and the inability to develop some
relevant measures, such as outcome measures. When only some values predominate,
the opportunity provided by the multiplicity of values to the development of
management accounting practices is lost, and possible inefficiencies may emerge. The
use of pragmatic constructivism shows that this lack of validity, determined by the non integration of values, would be reduced by increasing the discussion among conflicting actors’ values. Findings suggest that the presence of conflicting values, that at first glance may be interpreted as an impediment, would, on the contrary, be useful to
support accounting validity, when stimulating discussion. In this respect, conflicting
values should work alongside communication, to include dimensions of reality.
... While privatization has led to a shift in responsibility for retirement income from the state to public actors (employers, unions and individuals), marketization reinforced employment-related public benefits and private contributory retirement savings (Ebbinghaus, 2015). Moreover, there has been a substantial increase in financialization, and the share of funded pensions has increased and with it the dependence of pension fund capitalism (Ebbinghaus & Wiß, 2011). Great Britain, the Netherlands and Switzerland are known for their pension fund capitalism, followed by several Nordic countries with substantial private and public pension fund assets. ...
While the sustainability of pension systems facing demographic ageing has been widely discussed, the adequacy of retirement income has often been neglected in current debate. However, considerable poverty and income inequality in old age exists across Europe. Using recent EU‐SILC data (2017/18), the comparative analysis of poverty rates and income inequality in old age shows important cross‐national variations that need to be seen in context of market‐related inequalities but also the specific pension system. Beveridge basic security is not always capable of effectively reducing poverty despite the explicit goal to do so. In addition, private funded pensions may generate social inequality. Some contributory Bismarckian systems are better suited to reduce poverty, but given their focus on status maintenance also reproduce inequality. Poverty rates are low due to encompassing basic pensions in Dutch and some Nordic multipillar systems and in core Central and Eastern European countries. Bismarckian pensions such as in Germany are generating some inequality and medium level of poverty, while France and some Southern European countries perform better on poverty but reproduce larger inequalities. Beveridge systems such as in the United Kingdom and Switzerland with rather meagre basic multipillar systems have relatively medium to high poverty risks. In addition, the Baltic countries and new EU member states in the periphery have the highest poverty rates across Europe. The analysis shows that the minimum income provision of public pension systems matters most for poverty risks, while the overall pension architecture has an impact on reproducing inequality in old age acquired during working life.
... In perspective, due to both the financial crisis and demographic trends, the increasing privatisation of public welfare benefits will probably demand further regulation and the definition of an effective strategy by social partners, in order to keep an influence on decision-making. This will acquire even more importance since supplementary pension schemes often involve investments in the financial markets, with a certain degree of risk (Ebbinghaus and Wiß, 2011). In the countries of the Ghent system, the unions' involvement in unemployment insurance funds, in cooperation and with the supervision of national control boards, already requires a properly trained staff and organisational resources. ...
In recent years, decentralised collective bargaining has been increasingly discussed in Italy. The importance of collective bargaining is often questioned, but sectoral agreements have various purposes and the related bilateral bodies and funds are managed jointly by social partner organisations. In comparison with peak-level social pacts, it is a less visible kind of cooperation, but particularly relevant in times of crisis. The article deals with the activity of bipartite bodies and funds. The analysis shows that they perform remarkable functions and could develop further. However, some problems also emerge from the comparison with bilateral experiences in other countries.
... If governments increasingly impose tougher working conditions on benefit eligibility -as many governments have during the late 1980s and 1990s (on Germany, see Wenzelburger et al., 2018) -indicators based on replacement rates will not take into account these structural shifts. Similarly, structural changes between different pillars of pension schemes are usually not taken into account, although many states in the 1990s used public money to incentivize workers to invest in private or occupational pension schemes while, at the same time, downsizing the public pillar of the pension system (Ebbinghaus and Wiß, 2011;Wiß, 2011). Hence, while acknowledging that the new replacement rate data has been an enormous progress for welfare state studies, Pierson's call to focus on 'structure as well as size' (Pierson, 1994: 15) has not lost its relevance, even 25 years later. ...
Dismantling the Welfare State? is a modern classic in the welfare state literature. Yet although the book is widely known, the ‘Piersonian argument’ as it is typically referred to today bears limited resemblance to the book’s highly nuanced and thought-provoking ideas. This review revisits the book and explores some of the lessons it still holds for the research community.
Political economists have long acknowledged the importance of funded pensions acting as catalysts for processes of financialization. The transformation from rule- to risk-based pension fund governance is particularly important for pension financialization. Risk-based governance involves monitoring of internal decision-making procedures by new professionals rather than compliance with highly detailed legal restrictions. Scholars of financial regulation have termed this kind of supervision ‘regulation from the inside’. Being part of the organization they monitor, internal regulators hold fundamentally ambivalent positions. Existing studies emphasize the duality of internal regulators’ role perceptions as well as their attempts to span the boundaries between themselves and other organizational actors. In this paper, we extend scholarly insights on risk-based supervision of private (non-)financial institutions to pension institutions by focusing on a peculiar form of ‘regulation from the inside’: so-called internal supervisors in Dutch occupational pension funds. Internal supervisors are pension fund functionaries, responsible for evaluating the governing board's performance and holding the board accountable. We report findings from an original survey and interview study among internal supervisors. Contrary to the formal requirement of independence between governing board and internal supervision (a ‘checks and balances’ perspective), we find that internal supervisors often adopt a ‘fusion of powers’ approach that emphasizes collaboration with the governing board. We attribute this finding not only to internal supervision’s institutional design but also to the highly networked character of Dutch pension governance.
Die Altersvorsorge war in Deutschland nach dem Zweiten Weltkrieg vom sogenannten Ein-Säulen-Modell geprägt. Mit der Rentenreform im Jahr 2001 wurde es durch ein Mehr-Ebenen-Modell ersetzt, in dem die private kapitalgedeckte Rente gesetzlich und steuerlich gefördert wird. Mit den neu geförderten und regulierten Formen privater Vorsorge wurde ein neuer bzw. erweiterter Markt für Altersvorsorge geschaffen. Ziel dieses Beitrags ist es, die Nachhaltigkeitsverständnisse der Finanzdienstleister/innen in diesem Bereich zu rekonstruieren. Wir untersuchen, wie Nachhaltigkeit bei privaten Altersvorsorge-Produkten am Finanzmarkt von den Anbieter/innen nachhaltiger Anlagen gestaltet wird und dabei die diskursiven Argumentationsmuster und praktischen Implikationen bestimmte vorherrschende Rationalitäts- und Legitimitätsvorstellungen der Akteur/innen und des Feldes widerspiegeln. Diese symbolischen und praktischen Konstruktionselemente von Nachhaltigkeit bei der finanzialisierten Altersvorsorge arbeiten wir exemplarisch in einer empirischen Untersuchung auf Grundlage öffentlich zugänglicher Informationen heraus. Darauf aufbauend beleuchten wir das Verhältnis ‚nachhaltiger‘, finanzialisierter Altersvorsorge zu (In-)Stabilität und Risiken am Finanzmarkt.
Acknowledgment I would like to express my gratitude and appreciation to my supervisors dr hab. Pawel Kliber and dr Joanna Ratajczak for their strong support and patience during the process. Their helpful remarks and care have made this dissertation become a reality. I would also like to thank all staff of the university who helped me along the way, and especially to: prof. Maciej Żukowski; prof. Sylwester Bialowąs; dr hab. Piotr Michoń and prof. Tadeusz Kowalski who lead the DSE program. Special gratitude goes to Orit and Jacob Hayun who arranged the program and supported me all along. Last and most beloved: deep love and gratitude to my wife Daniela, my children and grandchildren, who supported me all the way and were full of understanding.
Due to ageing, governments have put into place parametric pension reforms during the last two decades. Consequently pension systems have become extremely complicated. Whether statutory, occupational or personal all pension forms are remarkably difficult to understand in depth. Nonetheless this huge complexity people are connected to their national pension system due to the existing underlying pension concepts. Each country possesses thus a unique own national pension identity. Every national pension landscape is created by or composed of the various pension forms occurring and operating concurrently, resulting in an aggregate pension concept that is tailored to a specific national context. It is this uniqueness that makes transposition of reforms from one country to another so complicated or at least deeply problematic. Changes from PAYG to funded schemes are therefore far from self-evident to be successful.
The ongoing privatization of pensions-the shift from state to private responsibility for old age retirement income-raises fundamental issues of social and participatory rights. While pay-as-you-go-financed public pension systems face sustainability problems due to an ageing society, the recent financial crisis reveals the problematic nature of funded private pensions that fall short of expected returns. What have been the experiences in developed multipillar systems in providing adequate pensions for all? What can be learned for those pension systems currently under reform? This edited book compares the varieties of pension governance in ten European countries. It contrasts the experience of developed multipillar systems such as Britain, the Netherlands, and Switzerland with emerging multipillar systems in Denmark, Finland, and Sweden as well as the still dominantly Bismarckian social insurance systems of Belgium, France, Germany, and Italy. Each of the ten country chapters investigates how and why old age income responsibilities have been shifted from the state to employers, unions, and individuals. The country experts first describe the changing public-private pension mix and then discuss the particular features of the private (occupational and personal) pensions. They answer four major questions: who is covered, what kind of benefits, who pays, and who governs private pensions? In addition, three comparative analyses review the long-term institutional change from public to multipillar pension systems, map the cross-national variations in regulation and governance of private pensions, and investigate the consequences for old age income inequality in Europe.
This comparative chapter by Ebbinghaus and Wiß analyses the governance of supplementary pensions in ten European countries and the scope for state intervention or collective regulation by employers and trade unions. Private occupational and personal pensions combine different features in terms of coverage, benefits, funding rules, supervision, and administration. While the state partially retreated from the public responsibility to finance sufficient and adequate pensions, the need for and importance of state regulation and societal control of private pensions increased. Societal actors like trade unions, employers' associations, and financial services became more important in governing pension systems. Since the pension beneficiaries rely as principals on agents with more financial knowledge, regulation should decrease asymmetric information and limit uneven power distribution. The more pensions are privatized and funded, the more a financial crisis can increase risks for old age income security.
Pension fund capitalism is a new, albeit evolving, stage of Anglo-American capital market development. It is marked by the ability of pension funds to aggregate the widely disbursed ownership of beneficiaries and therefore act as single entities with a unified voice. Pension funds within their investment portfolios are increasingly using this voice to engage companies. Such corporate engagement in its broadest definition is the use of one’s ownership position to influence company management decision making. Corporate engagement brings together four distinct underlying currents: first, the increased use of passive index funds; second, the corporate governance movement; third, the growing impact of socially responsible investing; and, finally, the impact of new global standards. At its best corporate engagement offers a long-term view of value that both promotes higher corporate, social and environmental standards and adds share value, thus providing long-term benefits to future pension beneficiaries.
Reliance on private retirement pensions is on the increase both at Member State level, via the spread of quasi-mandatory occupational plans, and at EU level, as a result of initiatives including the IORP Directive. This Working Paper analyses the legislative and market trends that underpin this development, assessing the impact of the global financial crisis, presenting the regulatory improvements required, and delineating the future prospects of the market for supplementary pensions.
Egalitarian liberal justice requires redistributive income transfers to protect the basic liberties of all citizens, yet it has been asserted that privatisation is fundamentally inegalitarian, and therefore likely to impair the autonomy of the least advantaged. This article assesses the redistributive potential of public and private pension arrangements by simulating the probable outcomes for individuals across a range of circumstances under the multi-pillar retirement systems of Britain, Germany, Italy, the Netherlands and Switzerland. The findings show that the public pensions model may compare unfavourably with systems that rely substantially on privately administered provision when both are appraised in terms of distributive justice. In just systems, what counts is the role and scope of the public authority in framing and securing compliance with egalitarian aims and objectives, not the locus of retirement scheme administration.
Applying the new economics of organization and relational theories of the firm to the problem of understanding cross‐national variation in the political economy, this volume elaborates a new understanding of the institutional differences that characterize the ‘varieties of capitalism’ found among the developed economies. Building on a distinction between ‘liberal market economies’ and ‘coordinated market economies’, it explores the impact of these variations on economic performance and many spheres of policy‐making, including macroeconomic policy, social policy, vocational training, legal decision‐making, and international economic negotiations. The volume examines the institutional complementarities across spheres of the political economy, including labour markets, markets for corporate finance, the system of skill formation, and inter‐firm collaboration on research and development that reinforce national equilibria and give rise to comparative institutional advantages, notably in the sphere of innovation where LMEs are better placed to sponsor radical innovation and CMEs to sponsor incremental innovation. By linking managerial strategy to national institutions, the volume builds a firm‐centred comparative political economy that can be used to assess the response of firms and governments to the pressures associated with globalization. Its new perspectives on the welfare state emphasize the role of business interests and of economic systems built on general or specific skills in the development of social policy. It explores the relationship between national legal systems, as well as systems of standards setting, and the political economy. The analysis has many implications for economic policy‐making, at national and international levels, in the global age.
This article provides some background on the development of pension regulation in OECD countries and makes some passing references to non- OECD countries. It then evaluates the role of regulation and assesses the delicate question of the level of regulation needed to ensure an efficient functioning of the system. The article next describes the process and thinking that led to the development of international standards for occupational pension systems. It then assesses the related question of supervision and evaluates the emerging models of supervisory structures and methods. Finally, the article takes a look into what the future might hold for occupational pensions and their regulatory and supervisory frameworks. © Gordon L Clark, Alicia H Munnell and J. Michael Orszag 2006. All rights reserved.
This article summarizes current economic analyses of occupational pension scheme design. The first section discusses the case of complete markets, and 'spot' labour markets, in which both employees and employers are indifferent between different occupational pension scheme designs. The implication of this result is that if any optimal scheme design exists then it must be the result of market incompleteness. The second section discusses the ways in which different types of market incompleteness faced by employees affect their relative preferences for pensions and cash wages. These include: uninsurable risks, such as wage risk and annuity price risk; portfolio restrictions; and the inability to borrow significantly against future income to support current consumption. In addition, workers receive significant tax benefits in the United States and the United Kingdom if they take part of their compensation in pensions. A third section discusses the empirical economic evidence about the role of pensions in labour markets that deviate from 'spot' labour markets. © Gordon L Clark, Alicia H Munnell and J. Michael Orszag 2006. All rights reserved.