Pension Privatization: Evolution of a Paradigm

Abstract

From 1981 to 2004, a paradigm shift occurred in pension systems worldwide as more than 30 countries fully or partially replaced their state‐administered pay‐as‐you‐go pension systems with ones based on individual, private savings accounts. Yet in 2005, pension privatization abruptly stopped. After the 2008 crisis, several countries that had privatized their pension systems scaled back or even canceled individual accounts. Is the new pension paradigm dead? And if so, why? This article shows that fiscal and ideational factors caused a temporary halt to pension privatization worldwide and induced transnational pension policy networks to find new ways to respond to perceived failures. Adjustments to the new pension paradigm such as emphasizing minimum pensions and recommending that governments “nudge” rather than mandate pension savings will enable pension privatization to continue in years ahead, albeit in a revised form.