Social Policy & Administration

Cover image for Vol. 51 Issue 3

Edited By: Ian Greener, Bent Greve

Impact Factor: 1.069

ISI Journal Citation Reports © Ranking: 2015: 12/41 (Social Work); 22/47 (Public Administration); 23/41 (Social Issues); 31/55 (Planning & Development)

Online ISSN: 1467-9515

Introduction to E-Special issue Social Policy & Administration on pensions

Introduction to E-Special issue Social Policy & Administration on pensions
By Bent Greve

Pension has been a cornerstone in welfare states for a long time. It was among the first risk to be covered when welfare states developed and it has been discussed in most countries in the light of and possible influence by, the demographic changes. Whether to organize pension system as a Pay As You Go (PAYG) or funded systems or combinations hereof have been an issue in pension policy for long time. Other central themes for pension systems relates to how long one should work, how to calculate the pension (as percentages of best income, average income for example) or whether it should be a defined benefit or defined contribution. The age of retirement and expectation regarding how many years to have worked before achieving pension has been other central themes for pension discussion. The impact on distribution, between generations and between men and women has been other central themes in the pension debate.

This special e-issue has its focus on pension and pension reforms by including articles from Social Policy & Administration on this theme over a period of more than 20 years. This special issue thus hopefully will make it possible to be informed on central themes in the pension area, and, at the same time getting information on central aspects related to how and why system has changed as they have over the last 20 years. Principles for how to organize and structure pension systems in diverse welfare states should thus be clear when having read the selected articles. The selection criteria has been to have a variety of articles dealing with pension and have them over a substantial numbers of year with different focus points on pensions, however with a central issue being pension reforms and reasons for reforms. Several of the contributions also have a comparative focus making it possible to get information of central changes in pensions systems – especially related to countries in Europe.

Taken together the articles points to dramatic changes in pension systems over the last decades and also that incremental change can lead to stronger deviation from the original path – and in the case of the pension system this has lead towards a higher reliance on occupational welfare and less on state financed and subsidized welfare. Changes also seem to imply international learning effects as many of the changes seem to follow – with national variations – in the same direction.

The first article, by Jørn Henrik Pedersen, from 1991 discuss principles of pension system, including that a PAYG system is compatible with a life-cycle approach, but at the same time compare funded (or as they are called in the article capital-reserve-system), and, further have classical data for public pension as % of GDP and dependency ratios and by this calculation of the need for growth in the economy in order to avoid pressure on public expenditure. The article argues that if using a Pareto criterion a change from a PAYG to a funded system “hardly seems to be a serious option”, and therefore the problem being to find other ways to cope with demographic changes. It further offers a short overview of changes in US, UK, Germany and Denmark including that they have a common set of problems related to expanded cost due to slow economic growth, cost pressure due to increase in benefit generosity and demographic changes impact. The issue of indexation of pension is also discussed. Several of the issues presented in the article are also issues still having an impact in and being discussed in welfare states today.

The second article, by Barbara Waine, takes a look of the risk for individuals taking out personal pension plans, and, by this focus on a central topic in pension in relation to how to divide risk among different groups in society. The article beside a short historical account of the development in the UK also discuss the conflict between use of collective provision (private or public) , and, also that freedom to make choice also implies that this can be choice with a negative personal outcome. The article finally also touches upon the different routes to social policy in Titmuss understanding especially social welfare and fiscal welfare.

Recently we have been discussing the issue of whether the welfare states are under pressure in the wake of the fiscal crisis. Already in 1999 Peter Taylor-Gooby pointed to policy change at a time of retrenchment. The article shows that pension systems around in welfare states tend to diverge in times of expansion, whereas some convergence can be witnessed in times of constraints, and given the pressure already seen at that time proposals for reform in the area of pensions have focused on several types of retrenchment. This includes, also by example from several countries, elements such as later age of retirement, change in indexation, cut backs in early retirement schemes and movement from public to occupational based pensions.

The risk connected to change in pension system is also in focus Patrick Rings article from 2003, here shown by that typically changes has moved the system more towards defined contributions instead of defined benefit and thus also moved the risk from the provider (employer or state) towards individual also more in risk in time of financial crisis, given that return on investments can vary over time. The consequence also being that it can be difficult for individual’s to make a choice or decide between risk and security. In this way risk and pension has changed towards that having a pension system will imply a risk, including, among other things the level of economic compensation when retiring.

Retrenchment is by now a classical issue when dealing with changes in welfare states. Another classical issue is whether a shift is big enough to be a systemic shift. This is also the topic of the article by Hinrichs and Kangas from 2003 comparing changes in the Finnish and German pension system. The debate revolves around whether and how to interpret small incremental changes and how they might have an impact in the longer-time perspective. This difficulty in analysis is even clearer in the area of pension which often has a gradual implementation and sometimes first fully enacted after a long-time lag. German pension reform such as the one in 1957 and in 1992 had profound impact on the system. Also in Finland small reforms in 1985 and 1996 have changed the system. They also rightly point to –as later history also has shown – that “pension reform policy is a “never-ending story”” (p. 587).

Pension system and the way they are structured can also be related to life-course politics, albeit so far changes do not fully fit a life-course perspective. This is the core of the article by Frericks, Maier and de Graaf. They compare reforms in several European countries and shows that many similar changes have taken place (again indexation, change in age of retirement, from defined benefit to defined contribution etc.). There have further been change in order to ensure financial viability, but reform do not really integrate care issues and flexibility in the systems.

The final article by Bonoli and Palier from 2007 opens for an analysis combing the impact of path-dependency with strong changes in the systems through incrementalism. This is done by analyzing how one change can lead to the next or open up new pathway to changes in pension systems. This includes four different but interlinked change in the pension systems with first no retrenchment, then change in indexation method, then more radical away from most being dependent on a PAYG towards higher reliance on occupational based pension system and finally strengthening of this relation. Gradually changes are combined with later age of retirement, longer number of years on the labour market, less attractive early retirement schemes etc.

Taken together the articles show that there have been clear common trends in the development of pension systems in the mature welfare state, often in an incremental way following the historical path while at the same time changing the path. This includes changes in the indexation of pension, movement towards more funded pension system, higher reliance on the individual's payment to the system and later retirement age.