Nudging Wage Earners into Accepting the Burden of the Financial Crisis: The Politics of Choice and the Individualisation of Retirement Risks

During the last two decades of the 20th century a shift in the finance of old age pensions, from a PAYG logic towards a funded strategy based on equity finance, appeared to be a miraculous solution to the problem of an ageing society. Countries with a tradition of social insurance engaged on a path of gradually replacing the second tier function of their public pensions by privately funded occupational pensions. Countries with a Beveridgean tradition removed the PAYG elements from their funded second-tier by reforming their funded DB schemes (tampering with the indexation to wages and inflation of pension accruals and benefits), or by altogether closing down DB schemes and replace them by DC systems (in an attempt to limit the back-servicing liabilities that form a PAYG element in funded DB schemes).  During the final decade these changes seemed to come at no cost to future pensioners, as stock markets were booming.  But following the dot.com crisis of the turn of the century the first dark clouds started to appear, and after the banking crisis the risk, uncertainties and transaction costs of individualised forms of funded retirement provision became apparent.  One way that policy makers seem to have sought to make these new risks and burdens, that individuals increasingly are exposed to, acceptable to the population, was to masquerade them under the mantra of individual choice. The paper investigates how this individualisation has taken shape in a number of different kinds of welfare states: Germany, Australia, the Netherlands, Sweden and the United Kingdom. It not only looks at the attribution of various risks, but also at measures that attempt to counteract possible adverse effects of expanding individual choice, such as the myopia and bounded rationality of the pension plan participants, and the possible opportunism of private providers of pension products.