Organising Private Social Protection - How to Explain Different Experiences with Collective Risk-Sharing in Denmark and the Netherlands?

Thursday, 2 July 2015: 10:15 AM-11:55 AM
CLM.7.02 (Clement House)
Pieter Tuytens, London School of Economics, London, United Kingdom
As governments are under growing pressure to contain or diminish public pension promises, many fear that pension privatisation will result in risk individualisation. However, countries such as Denmark and the Netherlands show that social protection is also possible within non-state provision. This paper uses both cases to construct a most-similar research design in order to investigate which factors explain how private social protection is created and shaped.  Denmark and the Netherlands both organise social protection through collective occupational schemes. Despite the similarities of the two systems, the political economy of pensions played out very differently over the past two decades - both in terms of emerging conflicts and crisis performance. This paper argues that we can explain this diverging experience by taking into account a) the distributional conflicts within collective risk-sharing, and b) the crucial role of state regulation in establishing and shaping these collective agreements. I develop a conceptual framework that distinguishes between the ‘pension promise’ (how the outcome is specified) and the ‘pension contract’ (how the outcome should be achieved). Both dimensions can be organised either more strictly (with pre-set and transparent rules), or more flexible (leaving room for discretion). The regulatory framework plays a crucial rule in establishing and sustaining agreements on both dimensions of organising conflicts.  Dutch schemes arguably made explicit pension promises, but left distributional decisions to the discretion of governing boards. This created incentives to pocket investment surpluses, left them badly prepared for the crisis and sparked distributional conflicts. Danish schemes made few pension promises but had clear rules on how to deal with surpluses and deficits. This prevented a similar scenario. The conclusions discuss how this conceptual framework can help to explain the difficulties of organising private pensions in other mature welfare states.