The Politics of Choice in the Reconstitution of Retirement Risks: Individualisation and Marketisation of Pension Provision

During the last two decades of the 20th century a shift in the finance of old age pensions, from a PAYG logic towards a funded strategy based on equity finance, appeared to be a miraculous solution to the problem of an ageing society. Countries with a tradition of social insurance engaged on a path of gradually replacing the second-tier-function of their public pensions by privately funded occupational pensions. Countries with a Beveridgean tradition removed the PAYG elements from their funded second-tier by reforming their funded DB schemes (tampering with the indexation to wages and inflation of pension accruals and benefits, abolishing the average contribution irrespective of the age of the plan participant etc.); or by altogether closing down DB schemes and replacing them by DC systems (in an attempt to limit the liability of extra funding that form a PAYG element in funded DB schemes). During the final decade of the 20th century these changes appeared to come at no cost to future pensioners, as stock markets were booming. But following the dotcom crisis of the turn of the century the first dark clouds started to appear, and after the financial crisis of 2008 the risk, uncertainties and transaction costs of individualised forms of funded retirement provision became more apparent. One way that governments have sought to make the disenchantment with the consequences of this individualisation and marketisation of retirement acceptable to the population has been to promote and legitimise them in terms of extending individual choice options. On the one hand, this has led to an expansion of choice options. On the other hand, some countries cautiously introduced a series of measures such as default options, auto enrolment mechanisms and stricter regulation of the pensions industry. The paper investigates cross-national differences in the architecture of choice as it has been developed and implemented in a number of European countries, including Germany, The Netherlands, Sweden and the United Kingdom. It addresses the question to what extent the promotion of choice options might in part have been motivated by a shift of the responsibility for retirement from employers and the state towards employees and pensioners, and assesses the consequences of this reconfiguration of risks for the structuration of people’s personal life and the political landscape in the countries concerned. In other words, the paper treats the policies of choice as both a dependent and independent variable in the process of welfare state change. The choice architecture of reformed pensions systems is investigated as a specific instance, of a more general trend in welfare state reforms, in which policy makers seek to make the individualisation of risks and the increased individual responsibility palatable under the mantra of consumer choice. Hence the paper also investigates to what extent varieties in the architecture of pension markets can be politically consequential.