The Political Economy of Pension Reform in Europe

Abstract

Over the second half of the 20th Century, pension reform has become central to the European social policy agenda, first in terms of construction and expansion and then increasingly in terms of consolidation and retrenchment. Expenditure growth projections started to be regarded as a serious risk for the sustainability of public finances and the competitiveness of national economies. In a context of demographic ageing and economic transnationalization pension “reform”, often meaning the reduction of benefits, acquired top priority. Most European countries have changed indexation rules, reduced early retirement options, increased retirement ages and encouraged the development of private pensions. Overall, they have reduced expenditure prospects significantly, thereby increasing again the risk of poverty. Several strategies have been used to pass these unpopular reforms, including “obfuscation” to make costs less visible, long phasing-in periods to reduce the opposition of workers close to retirement, dividing potential opponents by treating occupational groups differently, the use of incentives to work longer, and the use of discourse to frame reforms as “inevitable”. Pensions cannot be addressed in isolation; they are embedded in the broader political economy and in the broader set of public policies addressing all phases of the life course.