Sustaining the unsustainable? The political sustainability of pensions in Finland and the Netherlands

Ville-Pekka Sorsa,Natascha Van Der Zwan

doi:10.1177/09589287211035691

Ville-Pekka Sorsa, Natascha Van Der Zwan

Open Access

https://doi.org/10.1177/09589287211035691

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Abstract

What makes a pension scheme sustainable? Most answers to this question have revolved around expert assessments of pension schemes’ affordability or adequacy. This study shifts focus from the financial or social sustainability of pension scheme designs to their political sustainability. Political sustainability refers to policymakers’ ability and willingness to sustain pension schemes in the face of perceived challenges. We seek to fill a key research gap concerning the political sustainability of pensions by highlighting the processes of parametric adjustment through which pension schemes are sustained. We show how capital, labour and state actors have been able to actively sustain collective defined benefit (DB) pension schemes in two coordinated market economies, Finland and the Netherlands. The two countries have managed to sustain their DB pensions for relatively long periods of time despite facing the same sustainability challenges that have motivated paradigmatic shifts in other pension systems. We find that sustaining has been successful thanks to a governance culture in which policymakers have been willing to keep all pension scheme parameters open for negotiation and an institutional context that made policymakers able to turn parametric pension reforms into power resources for further reforms. Our findings also explain recent changes in the Netherlands, which moved the Dutch system towards collective defined contribution pensions.

Highlights

Sustainability has become an important lens through which to evaluate social policies, including pensions (Cox and Beland, 2013)
We argue that understandings of pension sustainability based on affordability and adequacy understate the institutional context and governance processes through which pension reform takes place
We argue that the concept of political sustainability (Patashnik and Weaver, 2020) allows us to address the importance of policy processes and acceptability, wider characteristics of pension schemes and the broader pension regime

Summary

Introduction

Sustainability has become an important lens through which to evaluate social policies, including pensions (Cox and Beland, 2013). We identify three waves of adjustment based on perceived sustainability challenges: (1) 1960s–1970s, when policymakers worried over institutional complexity and pension adequacy during the build-up of the pension system; (2) 1980s–1990s, when first concerns over fiscal pressures and demographic ageing emerged and (3) 2000s–2010s, when the long-term viability of the schemes became explicitly questioned.

Results

Conclusion