Taming pension fund capitalism in Europe: collective and state regulation in times of crisis

Abstract

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. Ré suméLa crise financière récente a provoqué des pertes majeures pour beaucoup de fonds de pension à travers l'Europe, en mettant en lumière les problèmes posés par le transfert aux acteurs privés de la responsabilité du revenu de vieillesse sans une réglementation suffisante. L'impact de la crise sur les fonds de pension et les revenus futurs de retraite dépend de la bonne gouvernance et d'une réglementation efficace. Il existe une grande variété en matière de développement et de réglementation des fonds de pension privés à travers l'Europe. Nous comparons les systèmes de pension complémentaire privée dans six pays (le Danemark, l'Allemagne, le Royaume-Uni, les Pays-Bas, la Suède et la Suisse) et nous analysons comment ces différents systèmes ont réagi à la crise. Si une augmentation des cotisations et un report de l'indexation peuvent être des mesures temporaires, les conséquences à long terme pour les individus sont plus importantes, en particulier

Shifting responsibilities in Western European pension systems: What future for social models?

“…In Germany, a solvency protection fund for book-reserve occupational pensions was set up in 1974 and newly introduced pension funds came under the same protection from 2002, while the other insurance-based private pensions are reinsured by the insurers. Following the recent financial crisis, contributions to all these protection funds have increased substantially (Ebbinghaus and Wiß, 2011). Swiss occupational pensions are protected by similar funds under federal and cantonal supervision, whereas in the Netherlands underfunding regulations are strict and reinsurance can be imposed by the Dutch Central Bank.…”

“…In the case of corporate bankruptcy, solvency protection for pension funds is important (Ebbinghaus and Wiß, 2011). The Maxwell scandal in 1991 exposed the risks of fraudulent corporate behaviour, stimulating stricter regulation under the UK Pension Act of 1995.…”

“…The policy-making world, notably of funded schemes, becomes dominated by experts whose technocratic arguments form a barrier to external participation. Even in funded schemes managed by the social partners, professionals and their associates dominate the essential business of risk management and fund investment, creating severe principal-agent problems (Ebbinghaus and Wiß, 2011;Habbard, 2011).…”

“…To meet social objectives, regulation of private pensions may stipulate gender equality, minimal vesting periods, indexation rules or interest guarantees (Ebbinghaus and Wiß, 2011). Applying the EU anti-discrimination principle, the European Court of Justice (case C-236/09) in March 2011 banned gender-based risk calculations, thus unisex insurance contracts, including annuity rates, must be applied to private pensions by the end of 2012.…”

“…Competing reform agendas have emerged. On one side, democratic accountability, state regulation and collective governance are understood as essential to pensioner protection (Ebbinghaus and Wiß, 2011); on the other, competent professional risk management is potentially undermined by constant political meddling (Pino and Yermo, 2010). As the post-crash state becomes increasingly entangled in funded scheme management, governments appear unlikely to escape liability for future failures.…”