Category Archives: Pension Funds

Out Soon: Business Interests and the Modern Welfare State

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I’m very happy to see the new edited volume by Dennie Oude Nijhuis, Business Interests and the Development of the Modern Welfare State, is coming out in July 2019. The volume offers “a synthesis on the question of business attitudes towards and its influence over the development of the modern welfare state.” Chapters consist of both historical country case studies and comparative chapters with country focus on Germany, Finland, the Netherlands, Switzerland, the United Kingdom and the United States. Policy aras covered include active labor market policies, educational policies, employment protection legislation, healthcare, private pension programs, and work‐family policies.

My own chapter in this volume explores how the financialization of the political economy during the last quarter of the 20th century has influenced business preferences for occupational pensions. I argue that capital funding has important ramifications for business preferences towards occupational pensions. With capital funding, the extent to which these plans can protect against the social risks associated with old age has become partially dependent on the financial risks stemming from capital funding. Financialization thus turns an influential argument in the business interests scholarship on its head, namely that, depending on size and industry, employers might be willing to incur higher risks to gain more control over social welfare provisions: as financialization reduces the possibilities for control over occupational pension provisions, employers will be more likely to adopt political preferences aimed at risk reduction. My argument builds on a comparative case study of business groups in the United States and the Netherlands.

 

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Filed under Financialization, Pension Funds, Publications, United States, Welfare State

Upcoming Talk: KU Leuven

Friction spaces poster

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April 1, 2019 · 9:06 am

Upcoming Talk: Netspar International Pension Workshop

6003007-8-9-2Photo credit: Chiel Koolhaas on Skitterphoto.com

 

On January 25, Tobias Wiß (Johannes Kepler University Linz) and I will be presenting our paper “Pension Funds and Sustainable Investment: Comparing Regulation in Denmark, Germany and the Netherlands” (with Karen Anderson, University College Dublin) during the Netspar International Pension Workshop in Leiden.

Our paper reports the first findings of a Netspar-funded research project on the regulation of sustainable investment by funded pension schemes. In this study, we use insights from comparative political economy and financialization studies to direct attention to the institutional underpinnings of pension schemes’ investment behaviour. The starting point of the paper is the assumption that regulation either incentivizes or discourages sustainable by pension funds. We furthermore assume that the type of regulation present in a pension system is influenced by institutional characteristics, such as the history of the pension system, the capitalization of the second pillar, the vehicles for pension provision, and the mode of governance. The paper employs a broad conceptualization of regulation, incorporating 1) national legislation, 2) regulatory activities by supervisory agencies and 3) self-regulation by the pension sector itself.

In all three countries, there is a growing sense that sustainability is related to (positive) return and that pension schemes, as other groups of politics, the society and the economy, need to take on responsibility for future sustainability, especially in times of climate change. Nonetheless, we do find substantial differences with regard to the regulation of sustainable investment by pension funds: highly developed in the Netherlands, moderately developed in Denmark and underdeveloped in Germany. In none of the cases, legal requirements for sustainable investment exist. Pension investments in all three cases are guided by the prudent person rule, although other rules may exist (e.g. ban on cluster munition in the Netherlands, quantitative restrictions in Germany). The Netherlands stands out as the only case, where 1) the industry has initiated self-regulation on sustainable investment and 2) where the regulator is developing a more all-encompassing attitude towards financial risk, that for instance also includes climate risk. Finally, we find that fund-level activities toward ESG investments are considerable in the Netherlands and Denmark and rather moderate in Germany.

In the coming months, we’ll be revising our paper before it will be published as a Netspar working paper. Keep on an eye on this website or our project page on ResearchGate for any updates.

 

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Filed under Denmark, Events, Germany, Netherlands, Netspar, Pension Funds, Publications

Upcoming Talk: NIAS Seminar

This Thursday, I will be presenting new research in the seminar series of the Netherlands Institute of Advanced Studies.

My paper presents a historical case study of the investment politics of Dutch pension fund for public employees, ABP (Algemeen Burgerlijk Pensioenfonds). Combining both quantitative and qualitative analysis, the research maps the financial flows between ABP and the broader political economy before and after WW2, while at the same time shedding light on the political considerations that informed the fund’s investment policies. I show how over time ABP’s investment politics became increasingly caught between the political interests of the state on the one hand and the dictates of dominant financial theories on the other hand.

The history of the ABP is indicative of the centrality of pension funds to the Dutch political economy. Contrary to traditional bank-based or stock-market based systems, the presence of these large funds have allowed the Netherlands to combine a generous welfare state with high financial development. Still, as the case study shows, the ongoing financialization of the welfare state has coincided with a depoliticization of pension investment. The result is a loss of public control over the flows of capital that emanate from the Dutch pension funds on the one hand and growing instability within the private pension system on the other hand.

This is unpublished work. Please e-mail, if interested in the paper.

FotoRouge

Source: H.W. Groeneveld, “De kosten onzer sociale verzekering,” De Werkgever, February 1925, p.37.

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Filed under Events, Financialization, Instituut GAK, Nederland Pensioenland, NIAS, Pension Funds

FGGA Research Publication

FGGA5I am very honored to be one of twelve academics from the Faculty of Governance and Global Affairs to have been featured in this new publication. Fast forward to page 58 to find out why pensions aren´t boring and why do-it-yourself-pensions are a bad idea. Or scroll down to read the full interview below. 

Pension schemes? Bóóóring! At least, that’s what lots of  people think, but not Natascha van der Zwan. On the contrary, the assistant professor and political scientist is fascinated by the subject. She compares pension systems in various countries (in historical perspective) and reflects on the way they work out for citizens. ‘Saving for later on an individual basis? That will widen the gap between rich and poor.’

Pensions are as old as time, says Natascha van der Zwan. ‘In Roman days, for instance, it was already common that the state (if one can use that term) rewarded veterans for their services with a “pension provision”, a piece of land. In The Netherlands, the first pension schemes came into being in the early 19th century. Strikingly enough, they were also, at first, meant for veterans, and for civil servants. The government provided a favor, a token of appreciation from the king to people who had distinguished themselves in government service. Soon, however, those provisions were expanded to another category of pensioners:  widows and orphans. Based on the idea that one should protect families without a breadwinner from further misery.

Over the course of the 19th century pension rights were extended to other groups, and the execution of those rights sided more and more with employers. Around the turn of the century , a number of big firms already provided their workers with a pension. Still as a favor, not as a right. And actually this is still the case today. In The Netherlands we have two kinds of “pension”: a state allowance at a fixed level, to which every citizen is entitled (the “AOW”). And a supplementary pension, as a rule managed by pension funds or insurance companies and paid for by employers and employees during the course of their working life. Agreements on contributions are part of the terms of employment.  Logical, as pension is in fact deferred wage: a form of salary that’s only paid after some time. ‘It’s typical for The Netherlands that management and labour organisations decide together on pension rights, often through collective labour agreements.’

Public Pensions

Van der Zwan is working on a historical study comparing pensions schemes in Germany, the United States and The Netherlands. ‘In Germany a public pension (provided by the state) was introduced  in the late 19th century. Private companies were not involved in this scheme. Even today, the government plays a leading role in pension provisions and pension funds are therefore less common in Germany than in the Netherlands. The country relies on the state pension, paid for by premiums. Current employees provide for current pensioners. But if more people retire and fewer people have a job, you’re in for a huge problem. Either workers pay more, or the government has to supplement.’

In the United States the ball lies in the employees’ court. Companies are not obliged to offer any form of pension, and usually they don’t – many people  rely on their own savings. Didn’t labour unions try to change this situation? Of course, and in the seventies the American unions were a force to be reckoned with. But their influence dwindled. They simply lost the battle.’

Do-It-Yourself-Pension

In the Netherlands, the question if the pension system should be scrapped is the subject of heated debate. ‘Not for the first time’, says Van der Zwan. ‘In the nineties, politicians were already questioning the current system. Employees, they argued, should be more at liberty to spend or invest their deferred wages as they saw fit. But time was not ripe for this yet. This only changed when the consequences of the financial crisis became noticeable. People were dissatisfied and new ideas gained ground. And what about Germany and the US? Of course, they also feel the pressure of economic circumstances and an aging population. These countries advocate making pension provisions less voluntary, along the lines of the Dutch system.’

Van der Zwan herself is critical  of the new pension ideas. ‘We know from the scientific literature: voluntary systems do not work. People don’t save, they postpone saving, or and only consider the short term. Or they have just managed to fill their pension pot when they are confronted with higher care costs. There goes their pension!’

‘There are people who say that we have become too dependent on government provisions, and that they cost too much. I am not one of those people. We know that the “do-it-yourself-pension” can make citizens very insecure, as well as leading to more inequality between those who have sufficient knowledge, discipline and responsibility to save for later, and those who haven’t. A voluntary system will widen the gap between rich and poor, between people who’ll have all their eggs in their basket, and those who’ll lose out.’

Text by Andrea Hijmans

FGGA2

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Filed under Financialization, Germany, Institute of Public Administration, Nederland Pensioenland, Pension Funds, United States

Fellowship at NIAS

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I am very pleased to announce that I have been awarded an Instituut Gak Fellowship at the Netherlands Institute for Advanced Studies in the Humanities and Social Sciences. I will be joining the NIAS in Amsterdam from early September 2018 until the end of January 2019. While at NIAS, I will be completing my book manuscript on the financialization of the Dutch pension system.

From my proposal: The project is a historical political economy of the Dutch pension system that investigates how the mutually constitutive relationship between the welfare state and the financial system shaped its development. Despite the international prominence of this case in academic scholarship and policy circles, a historical account of the Dutch pension system that integrates the study of social and financial policy has not yet been written. Five case studies of selected historical episodes from the early 20th century to the current period show how state, business and labor actors sometimes opposed, sometimes advanced financial development in order to achieve their social policy goals. This historical account of the Dutch pension system advances theoretical understandings of financialization in relation to the welfare state. The United States and Germany serve as shadow cases. Evidence is collected from national and international historical archives. The fellowship period would be used for the final write-up of the manuscript.

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Filed under Financialization, Germany, Instituut GAK, Nederland Pensioenland, NIAS, Pension Funds, Publications, United States

New Article on Financialization and the Pension System

My article “Financialisation and the Pension System: Lessons from the United States and the Netherlands” was recently published in the Journal of Modern European History (Vol. 15, No. 4). The article explores the financialisation of private pensions in the United States and the Netherlands. It proposes two distinct arguments. First, the article shows that both the American and the Dutch pension systems stand out internationally for their high degrees of capitalisation and the absence of substantive investment restrictions for pension funds. The article posits that both pension systems are highly financialised, yet the process of financialisation has proceeded along different historical paths and within different institutional contexts.

Second, the article maintains that the financialisation of pension systems is accompanied by its own political dynamics. In both political economies, different groups of actors (employers, labour unions, financial professionals) have made claims over the growing concentration of pension assets. Here, particular emphasis is given to the role of the state. It shows how since the mid-1970s, both American and Dutch pension funds have altered their investment strategies, abandoning public debt as the dominant investment category.

The article explains this change in terms of the rising popularity of modern portfolio theory and the immense growth of pension capital in need of new investment options. As austerity politics have made governments more dependent on financial markets, pension funds have become more assertive in leveraging their assets and demanding political reform which are in the interest of the financial industries. Financialisation has thus fundamentally altered the balance of power between the state and financial market actors.

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Filed under Financialization, Netherlands, Pension Funds, Publications, United States