Sustaining the Unsustainable? Explaining the Maintenance of Defined Benefit Pension Schemes in Finland and the Netherlands

Wednesday, July 12, 2017
Turnbull Room (University of Glasgow)
Ville-Pekka Sorsa , Department of Management and Organisation, Hanken School of Economics
Natascha van der Zwan , Leiden University
In many pension systems across the world, DB pensions have been replaced by DC pensions: DB pension are said to be financially unsustainable due to population ageing, incompatible with job mobility, and unfair to younger generations. Finland and the Netherlands are among the few mature three-pillar pension systems that seem to have weathered this trend. DB schemes account for around 90% of occupational pension schemes in the Netherlands and around 95% in Finland. In this paper, we try to explain this surprising stability of DB schemes in Finland and the Netherlands. The paper follows a most-similar systems design. Both systems are among the early adopters of pre-funded pensions. They are centralized,  paritarian and negotiation-based systems with a large degree of self-governance for the social partners. Mandatory participation guarantees high coverage in both pension systems and competition between pension providers is limited. Taking into account these institutional characteristics, we askwhy key stakeholders chose to maintain DB pensions at “critical junctures” within the history of these schemes. We maintain that while institutional path dependencies have prevented the adoption of pure DC schemes, they have facilitated other important changes in DB schemes, namely 1) hybridization; 2) increased flexibility; and 3) increased risk-taking. In both systems, ideas regarding the sustainability of the system have justified these changes . The paper ends with an exploration of this renewed political emphasis on sustainability of the pension system in the post-crisis years and asks if we are witnessing the beginning of the end for DB schemes in Finland and the Netherlands.
  • CES_DB_FIN_NL.pdf (286.7 kB)