Between Competition and Cooperation: Financial Incumbents and Challengers in German Pension Politics

Nils Röper

doi:10.1017/bap.2020.13

Abstract

AbstractIt has long been overlooked that factions of finance such as banks and insurers can have opposing policy interests. This paper is concerned with the preferences and strategies of private financial actors in the context of private prefunded pensions. To capture the “tug of war” among these actors, this paper identifies their different financial business models (insurance- and investment-orientation), political roles (financial incumbents and challengers), and levels at which infighting may occur (political and product-market level). For the German case, it shows that product-market competition among financial incumbents and challengers over retirement savings products only turned into competition politics during the 1990s, when shifting political winds provided an opening to insert path-shaping instruments in line with the program of finance capitalism. Financial actors’ preferences are not a derivative of economic or functional incentives, but socially embedded in that they are crucially shaped by interactions with their competitors and the political environment. The analysis disentangles the complex web of competition, cooperation, and ownership among factions of finance and discerns their genuine preferences from those strategically adjusted to context. This sheds doubt on functionalist explanations of (pension) financialization and enhances our understanding of how financial actors form and pursue their preferences.

Highlights

Over the past decades, pension systems have become increasingly “financialized,” leading to a growing share of old age income being dependent on capital markets.1 A key insight from recent literature is that not just the overall shift in relative weight from public to private and occupational forms of pension provision or from pay-as-you-go (PAYG) to prefunding is socially consequential and, and especially, the design of prefunded pensions
After all, are finite and require shock events or marginally accumulated changes that are substantial enough to open up windows for new policy instruments and ideas. This “tug of war” among private financial sector actors (PFSAs) at both levels is likely shaped by legacies of past decisions that have brought about a hierarchy among PFSAs, where some factions of finance are more dominant than others. Based on this notion of a financial sector that is diverse and hierarchical, this paper introduces the distinction of PFSAs into “financial incumbents” and “financial challengers.”
The secular trend of pension financialization across developed political economies and the resulting “great risk shift”142 make a more nuanced understanding of the political processes pertaining to design specificities of private and occupational pensions and their socio-economic implications imperative

Summary

Introduction

Pension systems have become increasingly “financialized,” leading to a growing share of old age income being dependent on capital markets. A key insight from recent literature is that not just the overall shift in relative weight from public to private and occupational forms of pension provision or from pay-as-you-go (PAYG) to prefunding is socially consequential and, and especially, the design of prefunded pensions. Naczyk and Hassel (2019) draw our attention to the heterogeneous preferences within German finance with regards to the “politics of private pension guarantees” and make important strides in explaining why the financialized pension fund challenge by banks and investment companies remained largely unsuccessful. The contested continuity delineated here, generated product convergence toward more financialized private pension products and shows that organized finance did begin to eye pension system change as a potential source of business by the mid 1990s, or that competition over private savings markedly intensified at that point, as often suggested.112 This begs the question of what had to change for banks and investment companies to move from product-market competition to competition politics. This suggests that deeply political processes bring about change at the pension-finance nexus and analyses need to be able to accommodate these

Findings

Conclusion

Discussion