By Tobias Wiß
Financialisation – the increasing reliance of society, the economy and politics on financial market solutions – has become a key feature of post-industrial economies. Pension reforms in recent decades reduced benefit levels of public pensions and expanded non-state – occupational and personal – pre-funded pensions, resulting not only in a process of privatisation but ultimately in the financialisation of pensions. As the result, pension policy is not only a social policy that affects retirement income, but also a financial one that impacts savings rates, corporate finance and, indirectly, corporate behaviour.
The first JEPP special issue in 2019 on “The political economy of pension financialisation: public policy responses to the crisis” edited by Anke Hassel and Tobias Wiß addresses how and why pension reforms came to rely more on financial markets and how public policy reacted to the financial crisis.
The collection of articles sheds light on pre-funded private pensions as one key component of financialisation, as they turn savings into investment via financial services providers. Public pension systems face financial pressures, resulting from ageing and rising public debt, while financial services are keen to move into the market of private pension provision. The financial crisis has triggered policy responses including shifts in investment strategies and also a re-assessment of the role of pre-funded private pensions as a complementary, rather than a superior, source of old-age income.
The special issue focusses on three main issues: The emergence of pension financialisation, reactions to financial crises and regulatory variation.
Politics and reform packages have mattered for the introduction of private pensions and especially minimum benefits in Germany. The overview of the historical development of pension financialisation in Denmark, the Netherlands and Sweden lays down how the social partners (trade unions and employer associations) managed to organise pre-funded pensions collectively allowing that financialised pensions serve social interests.
With regard to responses to financial crises, Germany, the Netherlands and the UK show processes of reinforcement instead of a weakening of pension financialisation.
A further set of articles looks more detailed at regulatory variation: The role of organised interests including adaptions of their strategies in times of financialisation, the influence of investment professionals promoting liability driven investment and the independent role of the state in shaping regulatory decisions. Apart from nation-states, the European Union does not promote a coherent pension financialisation agenda as one might expect. Instead, the EU’s pension strategy is rather accidental and multi-faceted, consisting of a mix of market creation, emulation and correction. In sum, it seems that pension financialisation and the broader financialisation of the economy are here to stay, despite negative developments during and after the financial crisis. Governments are quite aware that pre-funded pensions play a role for corporate finance, economic growth and financial markets in general.