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Word Count: 23,299 June 9th 2019
Author
Sander Johannes Cornelis van de Ven s2300389
Master thesis June 2019
Student MSc Public Administration: Economics & Governance s.j.c.van.de.ven@umail.leidenuniv.nl
University
Leiden University
Faculty of Governance and Global Affairs Turfmarkt 99, 2511 The Hague
Dr. N.A.J. Van der Zwan Thesis supervisor
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Table of Contents
1. Introduction ____________________________________________________________ 6 1.1. Motivation _________________________________________________________ 6 1.2. Research problem and research goal _____________________________________ 6 1.3. Research question and subquestions ______________________________________ 7 1.4. Academic and societal relevance ________________________________________ 7 1.5. Reading Guide ______________________________________________________ 8 2. Theoretical Chapter ______________________________________________________ 9 2.1. Typology of Pension Funds ____________________________________________ 9 2.2. Historic Development ________________________________________________ 11 2.3. European Developments ______________________________________________ 13 2.4. Interest advocacy in the EU ___________________________________________ 17 2.5. Theoretical expectations ______________________________________________ 19 3. Methodology __________________________________________________________ 22 3.1. Variables and operationalisation _______________________________________ 22 3.2. Case selection ______________________________________________________ 23 3.3. Data collection _____________________________________________________ 24 3.4. Data analysis _______________________________________________________ 25 3.5. Reliability and validity _______________________________________________ 26 4. Empirical Chapter ______________________________________________________ 29 4.1. Case description ____________________________________________________ 29 4.1.1. Case 1: The United Kingdom ______________________________________ 29 4.1.2. Case 2: Germany ________________________________________________ 32 4.1.3. Case 3: Sweden _________________________________________________ 35 4.2. Process of the 2016 IORP II Directive ___________________________________ 40 4.2.1. EIOPA: Report on QIS on IORPs (2013) _____________________________ 42 4.2.2. Commission Proposal for IORP II (2014) _____________________________ 44 4.2.3. Committee Report (February 2016) _________________________________ 45 4.2.4. Interinstitutional Negotiations (June 2016) ____________________________ 47 4.2.5. Debate and vote by European Parliament (November 2016) and adoption by Council of the European Union (December 2016) _____________________________ 48 4.3. Depiction of relevant actors ___________________________________________ 50 4.3.1. United Kingdom ________________________________________________ 50 4.3.2. Germany ______________________________________________________ 51 4.3.3. Sweden _______________________________________________________ 52
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5. Analysis ______________________________________________________________ 55 5.1. Member State interests and the varieties of capitalism approach _______________ 55 5.2. The ‘new’ politics of post-crisis Europe __________________________________ 57 5.3. Striking a deal with diverse Member State interests ________________________ 57 6. Conclusion ____________________________________________________________ 59 6.1. Answering main question _____________________________________________ 59 6.2. Discussion _________________________________________________________ 60 6.2.1. Discussion of the results and conclusions _____________________________ 60 6.2.2. Methodological discussion ________________________________________ 61 6.3. Recommendations for further research ___________________________________ 62 6.3.1. Collecting additional primary data __________________________________ 62 6.3.2. Studying IORP II Directive implementation ___________________________ 62 References ________________________________________________________________ 63
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Preface
Dear reader,This thesis marks the end of my master programme in public administration, with a specialisation in economics and governance, at Leiden University. In this thesis, the origins and developments of the 2016 IORP Directive on institutions for occupational retirement provision are traced and analysed in the light of contemporary academic literature. During this study, I have immersed myself in the world of economic and financial regulation on both Member-State and EU level, which has provided me with valuable insights for my further career.
The personal and academic development that I went through over the course of writing this thesis and the master programme at Leiden University in general, would not have been possible without the people who have actively supported me during my period as a master student. First, I would like to thank my supervisor, dr. N.A.J. van der Zwan, for her thorough and constructive feedback, without which I could not have written this thesis. Secondly, I would like to address several people in my personal environment who have supported me throughout my career as a student. My girlfriend Sanne has been highly supportive, both in terms of personal and content-related matters, for which I am highly grateful. Moreover, I would like to thank my parents, Ad and Regina, as well as my two brothers Remco and Harm for their support in a lot of different ways, which has allowed me to focus my efforts at studying and performing at university.
I hope you will read this thesis with the same joy that I had writing it.
Sander van de Ven Hapert, June 9th 2019
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1. Introduction
1.1. Motivation
This master thesis is written in order to study the relationship between national interests and the adoption of the IORP II directive by the European Parliament in December 2016. The IORP II Directive is a revision of existing legislation on the activities and supervision of institutions for occupational retirement provision (IORPs1), which was originally designed to foster an internal
market for the provision of occupational retirement through the introduction of minimum requirements and harmonising legislation. The revision of the exiting IORP Directive (dating back to 2003) is highly relevant for a variety of reasons. First, the IORP II Directive was drafted by the European Commission in order to (a) ensure the financial and economic stability of the European economy and (b) cope with the demographic challenges of an ageing society in the field of pension provision. Second, the deadline for transposing the regulatory measures in the IORP II Directive into national law has recently passed in January 2019, making this package of financial regulation especially relevant in contemporary political economy. Third, the reconciliation of strongly divergent Member State interests for the implementation of uniform EU legislation has proved to be a highly delicate and politically sensitive process. This has been illustrated by the recent criticism about an ‘overly interfering’ EU by Eurosceptic parties across Europe, and the United Kingdom even leaving due to a majority of the British population feeling that the European Union had been meddling too much in national affairs.
1.2. Research problem and research goal
Several academics have researched the institutional design of Member States and subsequent interest advocacy (e.g. Quaglia, 2012). Moreover, recent studies have revealed the highly complex and unique character of European policymaking, in which a diverse set of actors with varied or even contradictory interests ought to find common ground in order to develop uniform regulatory policy (Kalaitzake, 2017; Kastner, 2017). However, there has been a surprising lack of academic research in the field of EU (occupational) pension policy, which has been subject to the European Union’s attention after imposing tighter regulatory measures to other sectors such as Solvency II and BASEL III (for exceptions, see: Dowsey, 2012; Hennessy, 2013). Hence, this policy area has been relatively unexplored terrain, while demographic and economic changes have underlined the importance of the occupational pension sector for the future.
1 Institutions for occupational retirement provision, or IORPs, are “financial institutions that manage collective
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The goal of this thesis research is to analyse the process of the IORP II Directive, while also utilising academic literature to study the relationship between national institutional characteristics and policymaking on the European level. Especially the classic classification of welfare state regimes by Ebbinghaus (2011) and the ‘varieties of capitalism’ approach by Hall and Soskice (2001) serve as important concepts for this research. Moreover, this thesis will extend the insights from other policy areas (Kalaitzake, 2017; Kastner, 2017) towards this unique and relevant sector, within the context of post-crisis EU regulatory developments.
1.3. Research question and subquestions
This master thesis research is, as stated above, aimed at describing and analysing the impact of Member State interests on European policymaking. In order to gauge this, a case study on the revision of the existing IORP Directive (2003/41/EC) will be conducted, especially focussed on the role of three Member States: the United Kingdom, Germany and Sweden. Hence, the research shall answer the following question:
“How can the policymaking process regarding the IORP II Directive (2016/2341) be understood within the light of the institutional characteristics of Member State pension systems?”
In order to support this main research question, this research covers three subquestions:
- Which politically and economically different institutional approaches exist with regard to the provision of old-age pensions?
- What does the policymaking process regarding the IORP II Directive (2016/2341) look like and which actors played an important role?
- Which significant differences exist between the original IORP Directive (2003/41/EC) and the revised IORP II Directive (2016/2341)?
These questions will be answered through executing a comparative case study analysis in which the institutional characteristics of three Member States (the United Kingdom, Germany and Sweden) will be analysed and linked to the policymaking process that has resulted into the IORP II Directive.
1.4. Academic and societal relevance
The most important contribution of this master thesis to the existing body of work is bolstering the number of case studies that have been conducted in the light of (international) policymaking in which a deal has to be made by a variety of actors with highly diverse interests. Especially
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policy making at the European level has been a relevant subject for academic research. Others, such as Kalaitzake (2017) and Kastner (2017) have already studied the role of a wide array of various actors in the introduction of the Financial Transactions Tax (FTT) as proposed by the European Commission, uncovering the diverse interests that are in play when the EU attempts to introduce financial regulation. Moreover, this master thesis research builds on the classifications of welfare state regimes by Ebbinghaus (2011) and links this categorisation with Hall and Soskice’s ‘varieties of capitalism’-approach (2001) which assumes that Member States will act in line with their political and economic institutions.
From a societal point of view, the regulation of occupational pension funds is highly relevant in the light of three developments. First, demographic changes (an ageing population) have important economic implications, as an increasing amount of retirees relies on an increasingly smaller amount of working individuals. Secondly, a shift of responsibility from the government towards the individual with regard to social policies (e.g. health care, pensions) has increased the individual choice and, in the context of old-age pension provision, the reliance on supplementary (private) pensions. Third, the financial and economic crisis of 2008 has created an urgency of ensuring the responsible and sustainable behaviour of key institutions within the economic system (such as pension funds).
1.5. Reading Guide
This master thesis consists of six chapters. After this introduction, chapter two looks at the academic literature in the field of (European) pension fund regulation, which concludes by formulating theoretical expectations that will be tested in practice. Subsequently, the third chapter will describe the methodology that is used in the study of the IORP II Directive and its legislative process. Next, chapter four depicts and analyses the process of the IORP II Directive through the analysis of legislative documents and relevant news articles. Chapter five analyses the case of the IORP II Directive on the basis of the theoretical expectations, with chapter six formulating the conclusions, the academic discussion of the results and the avenues for further research.
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2. Theoretical Chapter
Paramount to analysing and understanding the transition from the IORP I to IORP II Directive within the context of member state interests is the theoretical and institutional context of pension provision in the European Union. In order to classify the highly divergent pension systems that exist within different EU Member States, the typology of Ebbinghaus (2011) will be adopted. Applying this typology allows for a comprehensive understanding of the varying degrees in which nations rely on occupational pensions funds for the provision of pensions. This, in turn, has important implications for the stances of Member States on the IORP II Directive. Moreover, this chapter will outline the developments of pension fund provision in the United Kingdom, Germany and Sweden, as well as the regulatory advancements made on an EU-wide level.
2.1. Typology of Pension Funds
The adoption of the IORP II Directive by the European Parliament and the Council of the European Union in December 2016 impacts the activities and supervision of institutions for occupational retirement provision in the 28 EU Member States. The combination of historical factors as well as the reluctance of Member States to delegate social policy competency to the EU has resulted in a large discrepancy between the laws and institutions that comprise the provision of pension funds across EU Member States (Haverland, 2007). Whilst each Member State has its unique characteristics, Ebbinghaus (2011) developed a typology based on the concept of ‘pillars’ as described by Goodin and Rein (2001).
Goodin and Rein point out that scholars such as Esping-Andersen (1990) ignore the difference between ‘regimes’ and ‘pillars’, in which the regime perspective focusses on the recipients of social expenditure (who gets what under which conditions) while the pillar perspective sees things from the provider’s viewpoint (who pays and who provides). The added value of the pillar perspective is that it goes beyond the state and its institutional arrangements to describe welfare systems, as it also discusses the institutional arrangements used in the spheres of the market, community and the family (Goodin & Rein, 2001). Whereas social democratic welfare regimes are defined by their universal, flat benefits that are provided by the state (first pillar), corporatist welfare regimes are characterised by work-tested benefits paid through occupationally-based funds that are financed through workplace contributions (second pillar). Lastly, liberal welfare regimes are identified by their reliance on individuals in providing for their own welfare through their own performance in economic markets (Goodin & Rein, 2001).
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Ebbinghaus (2011) uses these pillars to classify welfare states in Europe on the basis of their reliance on either the state (first pillar), occupational pension funds (second pillar) or the individual (third pillar) in terms of supplementary pension provision. In contrast to the provision of public pensions that is defined by law, supplementary pensions can be regulated by either the state or non-state actors. The term ‘supplementary pensions’ refers to the broad array of non-state pensions that are sponsored by firms, in addition to obligatory state-provided pensions. Moreover, supplementary pensions are either negotiated by social partners or based on individual decisions (Ebbinghaus & Wiβ, 2011a).
The first group that Ebbinghaus distinguishes are countries with a public pension system that strongly resembles the Bismarckian tradition in which earnings-related state pensions are most important and private pension saving schemes are minimal (examples are Belgium, France, Germany and Italy). The second type of countries includes Nordic countries (e.g. Denmark, Finland and Sweden) and is known for both its variations on the Beveridgean tradition of basic income security and diverse combinations of public or private earnings-related supplementary pension schemes. Thirdly, Ebbinghaus describes a group of mature multipillar pension systems (Britain, the Netherlands and Switzerland) characterised by a basic universal pension provision and developed private pensions, especially (quasi-)mandatory occupational pensions (Ebbinghaus, 2011).
The reliance on various actors in terms of pension provision also entails another approach in terms of the security of investment. Whereas mature multipillar countries act in accordance with the ‘prudent person rule’ in which regulation is aimed at the quality of the individual responsible for the investment of pension funds rather than quantitative restrictions, Nordic and Bismarckian countries tend to impose legally formulated quantitative constraints (e.g. quotas) on the investment of pension funds in order to prevent hazardous investment decisions (Haverland, 2007). Moreover, the categorisation by Ebbinghaus also resembles the size of pension fund assets across EU Member States. Since the group of countries with a strong Bismarckian tradition relies heavily on the state in terms of pension provision, the assets of pension funds are rather small, while pension funds are high in mature multipillar systems due to their heavy reliance on non-state actors in terms of pension provision. Pension fund assets in the Nordic countries are relatively low, but have been steadily increasing over time (Ebbinghaus & Wiβ, 2011a).
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2.2. Historic Development
The existence of significant cross-national differences is the result of a lengthy process in which several key decisions have shaped the legal and institutional structure of the various actors that comprise the system of pension fund provision. Ebbinghaus and Gronwald (2011) adopt a historic institutionalist view and argue that three moments in time, so-called ‘critical junctures’, are paramount in the structure of contemporary pension provision in European Member States. The first critical juncture is described as the choice of national governments to opt for either a Bismarckian social insurance or a Beveridgean basic pension in the period 1880-1950. Essentially, the ideological choice that was made in this era has determined the direction of future development of either system of pension provision. On the one hand, the Bismarckian approach constituted earnings-related benefits for specific occupational groups and is based on three principles: (a) pensions are a contributory social insurance that is jointly provided by employers and employees (‘parity principle’), (b) the size of entitlements is related to former earnings (‘equivalence principle’) and (c) these schemes are mandatory for certain occupational groups and are often self-administered by these occupational groups (‘occupational solidarity’). On the other hand, pension provision according to the Beveridgean view is centred around the provision of pensions conform three core ideas: (a) the provision of a mandatory state pension for all inhabitants (‘universalism’), (b) the provision of flat-rate benefits (‘basic pension’) and (c) these pensions are paid through general taxes (‘publicly financed’) (Ebbinghaus & Gronwald, 2011). Broadly speaking, the Continental European countries (e.g. Germany, France) adopted a Bismarckian approach while Britain and the Scandinavian countries followed a Beveridgean path.
The second crucial juncture was defined by the challenge posed by the growing gap between income during employment and after retiring. This challenge led to reforms across the 1950s-1980s in which the scope and generosity of benefits of supplementary schemes were expanded, in order to compensate the limited statutory pension benefits. In Beveridgean countries, the development of supplementary schemes was predominantly left to non-state actors through occupational pensions, while occupational pensions in Bismarckian systems only played a minor role in terms of old-age income (Ebbinghaus & Gronwald, 2011).
The third critical juncture, as defined by Ebbinghaus and Gronwald, concerns the reforms from the 1980s onwards in response to several demographic (ageing societies) and economic (mass unemployment, inflation after the oil crisis of 1973) developments that increased budgetary pressures. While these pressures affected both Bismarckian and Beveridgean systems, they had
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a bigger effect on pay-as-you-go (PAYG) systems as they directly felt the shifting balance between the decreasing share of net contributors while the share of net beneficiaries increased. Furthermore, systems operating a PAYG scheme proved to be very hard to reform in comparison to funded private pension schemes due to the fact that such a reform would entail a double-payment problem of current payers who would have to pay for both current pensioners and save for their own pension when they will retire in the future2 (Myles & Pierson, 2001).
As a response, Continental countries with a strong PAYG Bismarckian tradition responded by cutting public expenditures and promoting the development of occupational and private pension schemes. The underlying goal of pension fund provision in countries with a Bismarckian system has gradually shifted from ‘status maintenance’ (the original goal) towards poverty alleviation. Similar to the Continental countries’ reforms, Nordic countries strengthened their hybrid multipillar character by advancing their existing mix of publicly and privately provided pensions. Lastly, mature multipillar systems that already had a strongly diversified reliance on both public and private means of pension provision focussed on adapting and improving the regulatory framework in place for the private pension pillar (Ebbinghaus & Gronwald, 2011).
These reforms are the result of insights gained predominantly by the financial crises of the 2000s, which showcased the potential instability of financial markets and thus the volatility of pension funds that highly rely on the market. As well as the aforementioned regulatory measures by the state, private pension funds in mature multipillar systems have shifted from defined-benefits (DB) to defined-contributions (DC) schemes. The logic here is that DC plans entail less guarantees for contributors since they receive the interest and dividend over their contributions rather than a fixed entitlement once they retire. This allows for changes in entitlement levels due to the development of financial markets, thus relaxing the pressures on pensions funds. However, the reluctance of states to prevent this shift might have important implications in terms of an individual’s social security, since risks of pension fund investment are attributed to the individual rather than the pension funds themselves. Hence, Ebbinghaus and Gronwald’s (2011) depiction of the three major periods of reform in the field of old-age
2 In a pay-as-you-go system, current contributors pay for current beneficiaries and get a ‘promise’ that they will
receive an old-age pension when they reach the retirement age. In a funded system, beneficiaries save a certain amount of money that is invested. After retiring, contributors receive benefits on the basis of their previous contributions and both the interest and dividends earned on them (Barr, 2012).
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pensions creates a complete image that shows which choices were made by Bismarckian, Beveridgean and hybrid approaches to combat contemporary challenges in pension provision.
2.3. European Developments
Social policy has traditionally been a policy area in which the Member States are the sovereign governing body. Nevertheless, the expanding EU competences and the goal of creating a single market for both pensions and insurance services have increasingly curbed the autonomy of Member States since the adoption of Regulations 1408/71 and 574/72 in the early 1970s. These Regulations concern the equal rights of European citizens in terms of (mainly first pillar, public) pension schemes. Moreover, these two pieces of legislation introduce a coordination regime that is based around four principles: (a) ‘equal treatment’, which prevents discrimination in terms of entitlements or benefits; (b) the ‘aggregation principle’ that obliges Member States to take into account the employment and insurance history of an individual in another Member State when assessing eligibility requirements; (c) ‘prevention of overlapping’ in the sense that you are subject to the regime of one Member State at a time and will thus not be obliged to pay double insurance; and (d) the principle of ‘exportability’ that allows citizens to receive benefits from one Member State while residing in another (Guardiancich & Natali, 2012). These Regulations contributed to increasing portability of pensions, which in turn reduced the EU’s concern of limited freedom of movement of workers (as they were previously bound to a certain Member State by their dependence on this Member State’s pension regime). However, it should be noted that the scope of these Regulations remained rather limited and that the majority of supplementary pension schemes in Europe was not subject to this legislation.
In the late 1980s, the European Union adopted Directives 88/357 and 90/619, which furthered the development of a single market for insurances and pension funds through describing the freedom to provide services across the border of Member States. This has allowed insurance companies to operate in other Member States. Consequent rulings of the European Court of Justice (ECJ) clarified the scope of these Directives. As Guardiancich and Natali (2012) argued, this set the stage for the development of future regulation that would be focussed predominantly at the development of an internal market instead of extensive EU social policy.
Another vital moment in the development of occupational pension schemes in EU Member States is the adoption of the Treaty of Maastricht in 1992. Hennessy (2013) claims that the macroeconomic constraints that were implemented through this treaty (especially with regard to the deficit and debt-constraining criteria formulated) heavily impacted the capacity of
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governments to finance pension liabilities through the expansion of public debt. The adoption of the criteria stipulated in the Treaty of Maastricht have caused a common shock to all signatories, constituting a ‘pressure from above’ to limit public sector deficits and thus reform the national pension system (Hennessy, 2013).
Due to the accession of multiple countries with longstanding traditions in terms of supplementary pensions and the development of occupational pension schemes in EU Member States, extending the coordination regime of the early 1970s3 to cover supplementary occupational schemes was deemed as ‘unsuitable’ (CEC, 2012). The main problems were identified by Guardiancich and Natali (2012) as the fact that the accession would (a) require mutual recognition between highly diverse supplementary pension schemes; (b) entail a high administrative burden on small supplementary pension schemes and; (c) lack the necessary flexibility to allow supplementary pension schemes to function properly. The 98/49/EC Directive was adopted in 1998 to deal with the existing lack of pension fund safeguarding for employed and self-employed citizens moving within the European Union. Through this Directive these individuals are treated in the same way as employees remaining in the corresponding Member State, but Oliver (2009) finds that this legislation does not enable the transferability of pension rights into another scheme or cross-border membership4.
In 2003, the Directive (2003/41/EC) on ‘Institutions for Occupational Retirement Provision’ (IORP) was established. Its main function is creating the freedom for authorised IORPs to provide service across EU Member State borders. While the IORP Directive has contributed to the portability of pension funds, it has not led to a flourishing international market for occupational pensions (Ghailani, Guardiancich, Natali, Ferrera & Jessoula, 2011).
The Directive, which takes the interests of both Bismarckian and Beveridgean countries into account, has resulted in the development of a set of regulations that neither leads to full liberalisation, nor does it establish a European social policy regime according to Haverland (2007). Rather, the Directive deliberately avoided the inclusion of book reserve plans5 (highly important in Germany and Austria) and PAYG schemes (prominent in France) as Member
3 In 2004 and 2009, Regulations 1408/71 and 574/72 were simplified and modernised through the adoption of
Regulations 883/2004 and 987/2009 (Guardiancich & Natali, 2012).
4 Cross-border membership is only possible under Directive 98/49/EC for ‘posted workers’ who are temporarily
working in another Member State than they are normally employed (Oliver, 2009).
5 Book reserve schemes allow a company to use the assets that are used to cover future pension liabilities in a
way that the company itself sees fit and constitute an important part of German, Austrian and Swedish pension provision (Arnot, 2004).
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States were successful in their attempts to protect the existence of national occupational schemes (Guardiancich & Natali, 2012). In spite of its deficiencies, the IORP Directive of 2003 has laid down minimum standards for the operation of funded, occupational and independent retirement schemes within the European Union. With regard to prudential rules, IORPs are required to be registered in a national register, have clearly defined rules and have their liabilities calculated and assessed by experts. Moreover, members and beneficiaries of IORPs should actively be notified of the financial situation of the institution as well as the rights and legal terms of the scheme they are part of (Guardiancich & Natali, 2012). The Directive obliges IORPs to be properly funded, but the precise specification of funding requirements is left to the Member States. Furthermore, Arnot (2004) concluded that the Directive has adopted the prudent person rule in order to maximise the economic efficiency and security of IORPs. While Directive 2003/41/EC has contributed to the development of a single market for occupational pension schemes in the EU, Guardiancich and Natali (2012) argue that its effect is relatively limited due to (a) the fact that the Directive has only solved the portability problems of workers changing between different schemes within the same pan-European IORP, and (b) because the cross-border implementation of the Directive has proved to be rather unsatisfying.
The main issue for the adoption of EU regulation with regard to supplementary occupational pension schemes appears to be the mandatory character of the proposals in combination with the required unanimity for adoption of this legislation. However, the Lisbon Treaty of 2007 has changed the legislative procedure in such a way that a qualified majority, rather than unanimity is required. The importance of modest and incremental legislative developments is stressed by Oliver (2009, p.182), while it should be noted that this process could lead to a “fragmented patchwork of minimal provisions”. Hence, turning to means of regulation that have a less obligatory character might prove to be a solution to the disagreement of Member States on crucial aspects of the Commission’s proposals. One of these options is highlighted by Guardiancich and Natali (2008), who propose the use of ordinary legislative procedures to eliminate any obstacles to the cross-border transferability of pensions while leaving the decision to select a legal instrument to achieve this goal up to the Member States. Another option is the use of the Open Method of Coordination (OMC)6, which is better at accommodating the
6 Open Method of Coordination (OMC) policy formulation centres around the voluntary agreements between
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heterogeneity amongst EU Member States in the field of supplementary pension systems and the inherent political sensitivity that reforms in this policy area entail (Oliver, 2009).
In 2008, the European Commission organised a review of the existing IORP Directive (2003/41/EC) by the Committee of European Insurance and Occupational Pensions Supervisors, CEIOPS7 (predecessor to the European Insurance and Occupational Pension Authority, EIOPA). Since CEIOPS concluded that it would be premature to adjust the existing IORP Directive, the Commission refrained from reforming the Directive but decided to closely monitor whether or not the Directive ought to be changed. After policy changes in other areas as a direct result of the financial crisis that struck the global economy in 2008, the European Union reopened the evaluation of the IORP Directive, especially with regards to its solvency rules covering biometric or investment risk. This caused the publication of the Commission’s 2010 Green Paper on ‘adequate and sustainable pensions’ which touched upon Solvency II-like standards for IORPs. Eventually, EIOPA published a response to the Commission’s ‘Call for Advice’ in April 2011 on this subject, in which EIOPA argued that IORPs are actually financial institutions and should therefore be subject to similar solvency regulation as applied to the banking sector (Solvency II Directive). However, at hearings that were organised by the Commission in March 2012 in response to EIOPA’s advice, pension funds and other related stakeholders argued that the application of ‘Solvency II’-type rules would be detrimental to the future sustainability of pension funds. According to Dowsey (2012), the usage of a lengthy transitional period in order to allow pension funds to gradually accommodate these new standards seems to be one of the proposed solutions to deal with these capital adequacy regulations.
Despite several attempts to adopt extensive EU regulation that would enable and foster the development of cross-border supplementary occupational pensions, it has proved to be seemingly impossible for countries with strongly varying pension provision schemes to reach a compromise in this policy area. This has led to proposals that avoid, rather than address, the politically sensitive difference between Member States with regards to social and labour law, as well as the fiscal status of supplementary pensions (Guardiancich & Natali, 2012). In addition to the high complexity of compliance with divergent social and labour law in EU Member
7 CEIOPS (and after 2011, EIOPA) is a financial regulatory institutions of the European Union, tasked with
fostering and ensuring the transparency and stability of the financial system through monitoring and identifying potential risks and vulnerabilities (EIOPA, n.d.).
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States, the process of cross-border IORP creation has proved to be very time-consuming (taking nine up to twelve month to complete), which has deterred potentially interested stakeholders from operating an IORP. These shortcomings in terms of the portability and performance of cross-national IORPs, together with new insights in the field of solvency requirements (as a result of the 2008 financial crisis), set the stage for the development of the IORP II Directive that was eventually adopted in 2016.
2.4. Interest advocacy in the EU
Political decision making in the European Union is a highly complex process in which a wide array of different stakeholders, both public and private, are involved. The involvement of national institutions in the development of European policy making has been researched by multiple scholars, such as Peter Hall and David Soskice (2001), who developed the ‘varieties of capitalism approach’. This approach extensively studies the involved actors and their interests in order to analyse procedures of negotiation and decision making. An important contribution by the varieties of capitalism approach is its linkage between policy making and the institutional context within which such policy is implemented. In order to do so, Hall and Soskice (2001) classify countries as either liberal market economies (LMEs) or coordinated market economies (CMEs). Each of these ideal types operates at another side of the spectrum that runs from predominantly non-market and collaborative coordination mechanisms (CMEs) to hierarchical and competitive market coordination mechanisms (LMEs). The logic of Hall and Soskice’s approach (2001) is that policymakers will strive for optimal cooperation between economic actors and will therefore pursue strategies that suit well with the existing institutional context of the involved Member State. Hence, politicians in liberal market economies, such as the United Kingdom, are highly likely to turn to market mechanisms when formulating economic policy. Following this insight, it starts to become clear that institutional differences between Member States thus create diverse policy preferences, which in turn increases the complexity of decision making on international level, such as the European Union. In an attempt to prevent a political deadlock, the EU has (especially in the field of economic and financial regulatory policy) applied the strategy of ‘mutual recognition’ of national differences instead of implementing uniformly formulated European rules (Hall & Soskice, 2001).
The existence of these two ‘camps’ in European economic and financial regulation (LMEs versus CMEs) is confirmed by the study of Quaglia (2012). On one hand, the so-called ‘market-making’ coalition, led by countries such as the United Kingdom, Ireland and Nordic countries, advocates optimal competition and subsequent market efficiency. On the other hand, the
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‘market-shaping’ coalition, which included France, Mediterranean countries and (on many occasions) Germany, pursued goals of financial stability and consumer protection (Quaglia, 2012). European policymaking was dominated by either one of the two groups, depending on the topic and the timing of the debate. However, the completion of the single European market (e.g. for financial services) was one of the major victories of the market-making coalition. The global financial crisis of 2008 changed the dynamics between the two coalitions and the market-making coalition was blamed for the Anglo-Saxon model of financial capitalism that induced the crisis. Subsequently, in the aftermath of the crisis European institutions (such as the Commission) gradually moved away from the making coalition and towards the market-shaping coalition. The introduction of tighter economic and financial regulation (i.e. Solvency II, BASEL III) are examples of this paradigmatic shift, which caused the emergence of a ‘new’ politics of financial services regulation (Quaglia, 2012).
The insights of the varieties of capitalism approach have been the theoretical starting point for several academics studying the development of (national) interests with regard to certain financial and economic policies. One of these scholars is Cornelia Woll (2013), who examines the adoption of the European Hedge Fund Regulation in 2010. In her study, she finds a clear distinction between LMEs and CMEs; whereas the United Kingdom advocates for a light regulatory approach in order to allow the market to fully operate, Germany favours tighter regulation in order to protect its domestic companies. Moreover, Woll (2013) stresses the importance of political salience in the stances taken by the Member State governments. Topics with low political salience allow Member States to shift their positions and make them vulnerable to lobbying attempts, while issues of high political salience (and thus high appeal to the national electorate) will cause countries to act in line with the expectations that are formed through the varieties of capitalism approach. This confirms the findings of Culpepper (2011), who argues that the influence of private lobbying is highly dependent on the level of political salience of a certain topic (‘quiet’ versus ‘noisy’ politics). Culpepper (2011) concludes that the influence of private lobbying attempts are significantly more likely to succeed under conditions of low political salience and thus with low electoral attention (‘quiet politics’) rather than in the case of a highly popular and politicised debate (‘noisy politics’).
Another case of financial regulation by the EU, the Financial Transactions Tax (FTT), provides useful insights into the dynamics of financial regulatory policymaking in the EU after the 2008 financial crisis. Although the ambitious plans for the FTT were broadly supported by a coalition of 11 Member States, the European Commission, the European Parliament, civil society
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organisations and a majority of the EU population, the final result only was a highly watered-down version of the original proposal (Kalaitzake, 2017). The process regarding the Financial Transactions Tax shows the difficulties of EU policymaking, as proposals are likely to be stripped of their controversial and drastic elements in order to prevent institutional gridlock. Another trend, namely the increased actor plurality in EU regulatory policy, (Kastner, 2017) was also apparent in the FTT case as the financial sector mobilised several non-financial, societal organisations and companies (e.g. German manufacturer Siemens) in order to (successfully) strengthen the opposition to the Financial Transaction Tax (Kalatizake, 2017).
2.5. Theoretical expectations
This theoretical chapter has outlined the most important academic literature in the field of (occupational) pensions and European policymaking. The classification of welfare regimes by Ebbinghaus (2011) forms the basis for the empirical analysis into the influence of Member States on the IORP II Directive. The European developments in the field of occupational pension provision outline the way in which the contemporary regulatory framework was created and help us to analyse current changes in the light of the historical process that predates these developments. The final part of this chapter has presented an overview of the linkages that exist between national (institutional) preferences and European policymaking.
When applying the findings of the aforementioned scholars to the case of the reform of the existing IORP Directive (2003/41/EC), several theoretical expectations can be formulated. First, extending Hall and Soskice’s ‘varieties of capitalism’ approach to the IORP II Directive would expect one to find Member State interests to be divided by the design of their political and economic institutions. On the one hand, the countries with a liberal market economy (e.g. UK) will be reluctant to impose additional regulation on the market, as this might impede competition and thus efficiency. On the other hand, one might expect coordinated market economies (e.g. Germany) to advocate financial stability and member protection. In the case of the IORP II Directive, this would lead one to expect that the UK will attempt to reduce the amount and impact of additional regulatory measures by the EU, since it has a liberal market economy in which the efficiency of the market is central to the success of the system. Contrarily, Germany is expected to favour increasing regulatory control in order to foster stability and the protection of the beneficiaries of occupational pension schemes, given its coordinated market economy, which attempts to curb the risk of the free market through additional regulation. The third country that is central in this case study, Sweden, has a hybrid system which combines insights from both liberal market and coordinated market regimes, thus it is hard to pinpoint
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what its stance will be in the negotiations on additional legislative measures, as it could be expected that this is heavily dependent on the type of regulation that is proposed. Moreover, the expected stances by the United Kingdom and Germany are likely to mirror Quaglia’s division (2012) between market-making and market-shaping coalitions.
Second, the ‘new’ politics of post-crisis Europe (Quaglia, 2012) foster the expectation that European institutions will be leaning towards curbing market freedom (e.g. increasing regulatory standards) in order to ensure financial stability. For the IORP II Directive, this creates the expectation that the European institutions (e.g. the European Commission) will be the actors advocating for increased regulatory measures, rather than the Member States.
Lastly, the highly diverse national interests of the EU Member States are expected to lead the process of reforming the IORP II Directive to either (a) a gridlock in the negotiations over controversial elements of the proposed revision or (b) the adoption of a watered-down version of the original proposal, stripped of its most important, far-reaching aspects (Kalaitzake, 2017).
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1971-
1972
1992
1998
2003
2008
2012
2012
Review of 2003/41/EC IORP Directive
The European Commission tasked CEIOPS to evaluate the existing IORP Directive in the light of the ongoing financial crisis, addresses solvency rules covering biometric and investment risk.
Directives 1408/71 and 574/72
Guarantee pension rights EU citizens. Lays down coordination regime based on (a) equal treatment, (b) aggregation principle, (c) prevention of overlapping and (d) principle of subsidiarity.
Treaty of Maastricht
Introduces macroeconomic constraints with regard to deficit and debt-constraining criteria. Constitutes 'pressure from above'.
Directive 98/49/EC
Introduces the opportunity of cross-border pension fund membership, but this is limited to ‘posted workers’.
Directive 2003/41/EC
The first IORP Directive, creating the freedom for authorised IORPs to provide services across EU Member State borders. Increased portability of pension funds, but did not create a flourishing internal market for occupational pensions.
Hearings on EIOPA’s advice
Evaluation of EIOPA's advice with stakeholders. Pension fund sector advocating strongly against Solvency II-like rules for the occupational pension sector.
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3. Methodology
3.1. Variables and operationalisation
This master thesis research attempts to understand the reform of the existing IORP Directive (Directive 2003/41/EC) by conducting a comparative case study analysis in which the role of (the interests of) three EU Member States (Germany, Sweden and the United Kingdom) are studied extensively. The development of this reform on EU level is analysed, with special regard to these Member State interests, which have their roots in the diverse national pension systems.
Hence, the independent variables are the different pension systems that exist in the Member States that are studied. This independent variable is operationalised through the analysis and description of certain institutional choices that are made within a country’s old-age pension system. This includes a brief historical overview, as well as a classification of the current system through the adoption of the concept of ‘pension pillars’ by Goodin and Rein (2001) and the depiction of several defining elements of pension schemes. The indicators that are used for portraying the various pension systems are discussed in separate paragraphs within the case descriptions in chapter four. These indicators are, besides the historical development: (a) relation to national economy: liberal market economy or coordinated market economy; (b) type of benefit, defined-benefit (DB) vs. defined-contribution (DC) and (c) the type of pension governance, ‘prudent person rule’ vs. quantitative requirements.
The dependent variable is the development of the first IORP Directive into the second IORP Directive, that was adopted by the European Parliament in 2016. The adaptions and additions made to the original Directive are being studied in the light of the different institutional characteristics of EU Member State pension systems. Primarily, the revision of the existing IORP Directive of 2003 was driven by (macro) economic and regulatory developments in the wake of the 2008 financial and economic crisis. However, the way in which these regulatory reforms, aimed at ensuring economic stability, were shaped and developed are to be analysed with regard to the economic and political institutional characteristics of the Member States. The stances of the Member States on the IORP II Directive constitute the dependent variable in this research. The change in the dependent variable will be uncovered through close examination of (legislative) documents. As the field of public administration and decision-making is very well-documented, the analysis of relevant documents will allow for analysing the developments of
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the IORP II Directive under the influence of Member State interests. The strategies for data collection and analysis will be explained further on in this chapter.
3.2. Case selection
As has been already mentioned, this master thesis research will focus on executing a small-N comparative research in order to indicate the influence of Member State interests for the IORP II Directive. The selection of cases in a small-N comparative research can follow various strategies according to Toshkov (2016), one of which is the ‘most different systems’ approach, in which cases are selected on the basis of the differences rather than the similarities that exist across the analysed cases. In this thesis, this ‘most different systems’ approach shall be adopted, as this allows for the research to cover the highly divergent mix of pension schemes that exist across the 28 EU Member States and subsequently diverse national interests. The choice for Germany, Sweden and the United Kingdom rests on the classification of European welfare states by Ebbinghaus (2011), in which he describes three types: Bismarckian, Nordic and Beveridgean welfare states. The choice for each of the three cases is briefly outlined below, while a thorough case description in provided in the empirical chapter of this thesis (chapter four).
The first category of European welfare states according to Ebbinghaus (2011) are those which resemble a Bismarckian tradition. These welfare states, whose model originates in Bismarckian Germany, combine a strong earnings-related state pension with a minimal role for private pension saving schemes. The selection of Germany as an example for the Bismarckian countries within the EU is rather obvious as it is widely regarded as the benchmark for operating such a pension system, due to several factors: (a) its heritage as founder of earnings-related pension schemes in the 19th century, (b) its traditional linkage between capital and labour and (c) the frequent inclusion of social partners in social policymaking (Gronwald & Wiβ, 2011).
The second category by Ebbinghaus describes the Nordic countries, which are known for their variations on the Beveridgean tradition of a statutory basic income supplemented by both public and private earnings-related pension schemes. The hybrid character of these systems makes it difficult to classify them as either purely Bismarckian or purely Beveridgean, thus demanding for the existence of a third category which allows for the existence of combinations between both systems. From this category (which also includes Denmark and Finland), Sweden stands out and is especially interesting for this research due to its extensive pension system reform in the 1990s, when it implemented a system centred around a notional defined contribution
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(NDC), pay-as-you-go pension supplemented with mandatory individual investment accounts in order to cope with economic and demographic developments that undermined the stability and sustainability of the old system (Anderson, 2015).
Ebbinghaus’ third category comprises so-called ‘mature multipillar systems’, such as the United Kingdom, the Netherlands and Switzerland. Of these three countries, the UK resembles the closest approximation of the Beveridgean model, which is characterise by a rather small state-provided basic pension which is supplemented by a variety of pension schemes. Moreover, the close relation between Britain’s pension system and the uncoordinated nature of its liberal market economy has significant influence on the design of the former (Bridgen & Meyer, 2011). The UK’s system is characterised by individual responsibility of members and beneficiaries, as well as the strong role of private organisations in the provision of supplementary schemes. Moreover, the governance of private pension providers in the UK is identified by the absence of quantitative restrictions and the importance of the ‘prudent person’ rule, while regulation in Bismarckian systems predominantly relies on such quantitative constraints.
3.3. Data collection
This master thesis relies purely on the analysis of existing documents in its attempt to answer the main research question. The data that has been collected can broadly be divided into two groups. The first group of documents are secondary sources: articles written by academics, published in scientific journals and books. These articles were the main source of information for the classification and description of European welfare states in the empirical chapter (i.e. Ebbinghaus, 2011). Moreover, these articles served as the main source of information for the portrayal of old-age pension systems in Germany, Sweden and the United Kingdom as well as an outline of regulation of the occupational pension sector in the European Union (i.e. Guardiancich & Natali, 2012). These articles were found through the investigation of publications in relevant academic journals over the last ten years, such as the Journal of European Public Policy. Moreover, the book by Bernard Ebbinghaus (The Varieties of Pension
Governance), in which he classifies and describes the various types of welfare state regimes
that exist in Europe, has been extensively used throughout this thesis. This book has been the starting point for the descriptions of the pension regimes in the three studied EU Member States, as Ebbinghaus’ book contains separate chapters that specifically cover the institutions that comprise the pension systems in various European countries.
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The second type of documents that have been analysed for this master thesis are primary sources, such as legislative documents (i.e. proposals, Directives, amendments) and other reports that describe the process that has predated the IORP II Directive reform. Especially EUR-Lex, the EU’s database on European Union law has served as a major source of these legislative documents. These have been retrieved through entering the unique name and number that each legislative document possesses (for the IORP II, this is 2016/2341).
Moreover, articles by the Intelligence on European Pensions and Institutional Investment (IPE) and the Financial Times are used to supplement and triangulate these legislative and procedural documents published by national and EU government institutions. The search tools on these sites are utilised in order to search for ‘IORP’ and ‘pensions EU’. The same strategy has been employed for German (Frankfurter Allgemeine, Süddeutsche Zeitung) and Swedish newspapers (Dagens Nyheter, Svenska Dagbladet). However, the information found in German and Swedish newspapers proved to be rather limited, and the articles that were relevant for this thesis provided no new information that was not already found through the analysis of IPE or Financial Times articles.
3.4. Data analysis
The design of the research that is central to this master thesis can best be described as a small-N comparative research design. This cross-case design allows comparisons between (both similar or dissimilar) cases and has resulted in a research in which multiple cases are analysed in detail while also profiting from the insights that can be acquired through comparative research. Furthermore, this small-N comparative design fits well with the goal of this study, as it focusses on constructing a comprehensive explanatory account of outcomes rather than systematically finding weakly related causal factors (Toshkov, 2016). In this study, this goal translates to the thorough understanding of the supposed correlation that exists between the institutional design of a country’s economic and pension system on one side, and the anticipation and reaction of Member States on the formation of the IORP II Directive on the other side.
The well-documented character of the policy domain at hand, namely (European) policy making, makes it possible to comprehensively reconstruct the process of the IORP Directive reform, as well as identifying the relevant actors involved. This technique fits within the strategy of a small-N comparative case study, as is allows for the study of qualitative data in order to construct a complete image of a certain case (here: the development of the 2016 IORP
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Directive). Through employing this technique, this master thesis analyse the development of this new Directive and investigates whether and how different national pension systems have influenced this process. Depending on the outcomes of this thesis, the ‘most different systems’ approach that is adopted allows for the conclusion that either (a) the institutional differences between Member States are irrelevant (in the case of similar outcomes), or (b) the institutional differences between Member States correlate strongly with the varying stances on the IORP II Directive.
3.5. Reliability and validity
The choice for a small-N comparative research design to analyse the development of the IORP II Directive has important implications for the reliability and validity of the answers provided to the main question posed in this master thesis.
Firstly, the advantage of executing a small-N comparative research enables the study and unveiling of a correlation that exists between the dependent and independent variables that are analysed. Secondly, this approach is valuable is through its ability to address potential alternative explanations in the in-depth phase of the analysis, something that is not possible through solely executing cross-case comparisons. Despite these strengths, it should be noted that this research design has its limitations. Predominantly, this can be found in the limited generalisability due to the highly contextualised qualitative data that is collected through the in-depth studies into the different cases (Toshkov, 2016).
The reliability of a research is determined by (a) the accuracy and (b) the consistency with which variables are measured. If the level of accuracy and consistency of a research rises, the conclusions and findings that are produced are increasingly likely to be systematic rather than the result of chance (Van Thiel, 2015). The first element of reliability is the accuracy of a research, which predominantly refers to the instruments that are used by a researcher to measure the investigated variables. In respect to this master thesis, the choice for a document analysis to gauge the developments regarding the reform of the IORP Directive (2003/41/EC) is a logical one: the field of (EU) policy making is well-documented which allows for the accurate depiction of the policymaking process. Hence, the availability of a lot of highly informative records (e.g. notes written by advisory bodies, formal decisions and recordings of debates) enables the accurate portrayal of the policymaking process through the analysis of these documents. It should however be noted that document analysis might not reveal the entire process of interest advocacy by MEPs, politicians in the Member States and other public and
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private actors, as these processes often also take place in an informal setting. Incorporating the knowledge of relevant (political) actors through interviews could therefore be a valuable addition in order to formulate an accurate reconstruction of the influence of Member States on the reform of the IORP Directive.
The second element of reliability is the consistency, which in social sciences amounts to repeatability of a research, which asks whether an analysis would give the same results when conducted under the same circumstances (Van Thiel, 2015). In this master thesis, there are no threats to the repeatability of the conducted research: the document analysis can be reproduced and the various steps that constitute the research are described in this methodological chapter.
Along with reliability, validity is the second important principle that should be taken into account when executing academic research. Validity can be divided in two main forms: (a) internal and (b) external validity. Internal validity refers to the legitimacy of a research, questioning whether the conducted investigation actually measured the effect that it aimed to measure through looking at the way in which the research is designed (Van Thiel, 2015). Internal validity comes down to two major factors, namely the operationalisation of the theoretical concepts that are central in the study and the strength of the theoretical connection between the dependent and independent variable. Hence, the right operationalisation is key in ensuring internal validity. In this thesis the operationalisation of the X-variable, the differing pension systems, made use of the academic literature on the classification of pension regimes and case studies in order to describe the variety of approaches to old-age pension exist in the EU and inherently how their interests differ with regard to regulatory reform. The operationalisation of the Y- variable, the transition between the IORP I and IORP II Directives, comes down to the formal differences between the two Directives, while also taking into account the various amendments that were made during the legislative process but that were eventually discarded and not adopted in the final draft of the IORP II Directive. This operationalisation allows for the systematic study of the reforms that were made and how these changes might be traced back to Member State interests. Hence, the operationalisation of the X- and Y-variable through these indicators allows for close examination of the phenomenon that is the subject of the main question of this thesis.
The external validity of a research relates to the generalisability of the findings, asking whether they also hold for other cases and time periods. While the internal validity of case study research is high, the external validity is less strong. The reason is rather logical: due to the highly detailed and contextualised nature of the information that forms the basis of case study research, the
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findings presented in this thesis lack generalisability across cases. The unique character of the IORP II Directive, the timeframe in which it was introduced (i.e. shortly after the financial crisis of 2008, with stability targets in mind that have their origins in this period) and the institutional arrangements in the three analysed Member States contribute to the highly contextualised nature of the information on which the conclusions of this master thesis are based, thus reducing the external validity of these findings. Hence, the generalisability of a comparative research design inevitably suffers from the fact that the researcher includes and excludes certain cases. However, this threat should not be exaggerated as the findings of comparative studies are still highly valuable in developing more general propositions (Frendreis, 1983).
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4. Empirical Chapter
4.1. Case description
4.1.1. Case 1: The United Kingdom
The pension provision system in the United Kingdom is considered as the closest approximation of the Beveridgean ideal type within the European Union. The provision of old-age pensions in Britain relies on a fairly small state-provided basic pension in combination with a multipillar choice of supplementary pensions, which is why Ebbinghaus (2011) classified the UK as a country with a mature multipillar pension scheme.
4.1.1.1. Historical development
The origin of Britain’s Beveridgean approach to pension provision can be traced back to 1909, when the Liberal government adopted a non-contributory, flat rate and means-tested pension which was paid for through general taxes. Pension reforms in the 1940s had created a strong voluntarist approach to non-state provision, which constituted a strongly liberal approach to pension provision. However, the period shortly after the Second World War, known for the Labour government’s large nationalisation programme, had created strong labour unions that actively advocated employee’s rights and pursued the expansion of pension rights for public sector workers (Bridgen & Meyer, 2011).
In 1975, the British state extended its influence on the private sector through incentivising employers to run occupational DB pensions schemes by offering a rebate on national insurance contribution for contracted-out employees. In return, employers would have to introduce a widow’s pension and increase the level of protection of employees’ pensions. While these reforms point in the direction of the development of a more social-democratic system, the rise of the Conservative party in the 1980s prevented this and even started to dismantle many of these hybrid components of the British pension system (Bridgen & Meyer, 2011).
Simultaneously, the membership of occupational pension schemes had expanded even further, covering a large part of the labour force through the 1980s. Through the adoption of a gradual strategy, recently installed supplementary schemes were reduced and opt-out occupational and private plans were supported. In this way, the British pension system had regained its emphasis on individual responsibility and the reliance on market-based schemes in terms of old-age pension provision (Ebbinghaus & Gronwald, 2011). Nonetheless, the increased reliance on the private sector also involved increased risks, such as several scandals in the 1990s that reduced the confidence of UK citizens in non-state pension provision. The British government
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responded by introducing additional regulatory measures, including minimum funding levels and increased member involvement (Bridgen & Meyer, 2011).
After Labour’s rise to power in 1997, the existing pension system was maintained but reforms were drafted to cope with pensioner poverty and the absence of private savings amongst lower and middle income groups. After several attempts to reform the pension system, an independent Pension Commission was established with the purpose of investigating whether the reliance on private sector voluntarism was a viable strategy for the future. The Commission’s recommendations included a reform of the public system, which was supported by the organised interests of both sides of industry. This culminated in the 2008 Pensions Act, which increased the generosity of public pensions and obliged employers to enrol employees in an occupational pension scheme (Bridgen & Meyer, 2011).
4.1.1.2. Relation to national economy
The British system of pensions funds provision is closely related to its uncoordinated market regime. This liberal welfare approach is an essential part of the United Kingdom’s economy, in which the individual enjoys a lot of responsibility. With regard to the pension system, this is exemplified by the voluntary membership of occupational and personal schemes. Moreover, the liberal market economy’s shareholder model can also be found in corporate governance arrangements, with employees only having a minor role on the governance of occupational pensions in relation to corporate actors (Bridgen & Meyer, 2011).
4.1.1.3. Benefit types
The benefit types of occupational pension schemes differ strongly across sectors, with high-quality defined-benefit schemes predominantly present in the public and manufacturing sectors. However, the first decade of the 21st century saw a major decline in the number of
high-coverage occupational DB schemes open for new members of around 50%. Rather, these schemes have gradually shifted towards less generous defined-contribution plans. Inherently, the strong variations across sectors, income groups, but recently also cohorts (due to waves of reform) are expected to cause divergent levels of benefits that members receive upon retiring (Bridgen & Meyer, 2011).
4.1.1.4. Pension governance
As already mentioned above, the provision of occupational pensions in Britain occurs on a voluntary basis by individual employers. Employers work together with independent trust funds that administer these pension funds. These take the form of an individual savings plan, which
