The Politics of Choice in Occupational Pensions

Research on pension reform has developed into an important research area in political science, sociology and economics. Most research in this area focuses on the attempts of governments to deal with the challenge of adapting existing pension schemes to the constraints posed by ageing, fiscal austerity, and the increase in non-standard employment. Scholars have devoted much less analytical attention to an important aspect of many reform processes: attempts to increase freedom of choice within existing public and private pension schemes.  This paper attempts to address this gap in the literature by analyzing the introduction and/or expansion of individual choice in three countries: Sweden, the Netherlands, and Denmark. The paper draws on the literature concerning individual choice in social service provision to unravel the political drivers of expanded choice in both private and pension provision.

Sweden, the Netherlands and Denmark are ideal cases for analysing the politics of individual choice in pension provision because they represent the introduction of several kinds of choices into both public and private schemes. Sweden introduced mandatory individual accounts as part of its major public pension reform in 1998. Participants choose from more than 600 funds for the portion of their pension contribution that is earmarked for the individual account. The Netherlands has expanded individual choice in private occupational pensions by allowing participants to choose a flexible retirement age (with correspondingly higher or lower pension), to receive a higher pension in return for higher contributions, and to swap survivor benefits for a higher individual pension. In Denmark, mandatory private occupational schemes now offer participants a wide range of choices in terms of benefit levels and investment products.

The paper analyses the political processes that led to the introduction of these individual choices. In Sweden, individual choice in mandatory accounts was highly contested. Individual accounts and individual choice were the centerpiece of the pension reform for the non-socialist parties, wheras the Social Democratic Party strongly opposed them. The Social Democrats accepted individual choice as part of  larger compromise. In contrast, Danish and Dutch occupational pension schemes have introduced individual choice without much controversy. The paper explains this difference by emphasising how policy legacies in the public and private social policy-making areas shaped outcomes.