Noel Whiteside on future retirement provision

Noel Whitesidet

Noel Whiteside

In oppo­si­tion to libe­ral theo­ries that under­stand indi­vi­du­als as inde­pen­dent agents moti­va­ted by per­so­nal gain, con­ven­tion theory argues that human beings as essen­ti­ally inter­de­pen­dent. To rea­lise objec­tives, all need to anti­ci­pate the reac­tion of others to their initia­ti­ves. The theory demons­tra­tes how collec­tive con­fi­dence and trust are cen­tral to human activity: collec­tively accep­ted sys­tems of co-ordination are requi­red to pro­mote suc­cess­ful social and eco­no­mic action.

In this con­text, mar­ket mecha­nisms – based on jud­ge­ments of qua­lity and rela­tive costs and reli­ant on com­pe­ti­tion to fos­ter maxi­mum choice at opti­mal pri­ces – offer but one form of co-ordination. Other co-ordinating con­ven­ti­ons involve accep­tance of com­mon codes (of mea­su­re­ment in engi­nee­ring or medi­cine, for example) or moral duties (fos­te­red by reli­gious obser­vance, per­haps) or civic obli­ga­ti­ons (to abide by the deci­sion of the majo­rity when draf­ting laws).

These are merely exam­ples of the mul­ti­ple ‘worlds of value’ (to cite Boltanski and Thevenot, 2006) wit­hin which indi­vi­du­als justify their actions, to gain public under­stan­ding by refer­ring to collec­tively respec­ted sys­tems of socio-economic orde­ring. In this respect, the state is the ‘co-ordinator of last resort’: enfor­cing collec­tive jud­ge­ment and gua­ran­te­e­ing the har­mony of com­pro­mi­ses bet­ween dif­fe­rent ‘worlds of worth’ as deci­ded by the polity. Public deli­be­ra­tion crea­tes new com­pro­mise, so accep­ted action is modi­fied and public jud­ge­ment about the ‘right’ and ‘wrong’ way of doing things chan­ges: the theory is essen­ti­ally dynamic.

When trans­la­ted from the means people use to engage with the world to address issues in social policy and collec­tive wel­fare, we simi­larly enter a world of moral jud­ge­ments that deter­mi­nes who has a right to a social ser­vice or bene­fit – and on what grounds. For a cen­tury or more, such fac­tors have com­monly invol­ved citi­zenship, or work record (as signi­fied by a record of social insurance con­tri­bu­ti­ons), or both. Sickness bene­fits have some­ti­mes been cir­cum­scri­bed by whe­ther the pro­blem is self-inflicted (by, for example, alco­ho­lism or drug addic­tion), denot­ing other collec­tive expec­ta­ti­ons con­cerning per­so­nal behaviour.

Equally, not all wit­hout work can auto­ma­ti­cally claim unem­ploy­ment bene­fits: there are expec­ta­ti­ons about job-seeking beha­viour or wil­ling­ness to under­take trai­ning and, in periods of reces­sion, clai­mants may be requi­red to take any work they are phy­si­cally capable of doing (rather than hol­ding out for a job in their pre­vious pro­fes­sion). In the pro­cess of its imple­men­ta­tion, the­re­fore, social policy out­co­mes involve moral jud­ge­ments that are con­stantly modi­fied to reflect chan­ging circumstances.

Pension policy can illus­trate this point. Historically, the ear­liest pen­si­ons were supplied to armed ser­vice per­son­nel. Here, jud­ge­ments reflec­ted rewards due to those put their lives at risk on behalf of the collec­tive, but who were now too old (or woun­ded) to serve any lon­ger. The pen­sion was com­monly a lump sum to enable the reci­pi­ent to purchase ano­ther means of earning a living. The asso­cia­tion bet­ween a pen­sion and actual reti­re­ment dates from the 1940s and far lar­ger sums had to be involved.

In recent years, as life expec­tancy rises and the baby-boom gene­ra­tion reti­res, pre­vious finan­cial balan­ces have come under strain and new pen­sion sche­mes are intro­du­ced to supp­le­ment fal­ling state pro­vi­sion. In keeping with pre­va­lent neo-liberal theory and encou­ra­ged by bur­geo­n­ing returns on glo­bal finan­cial mar­kets in the clo­sing deca­des of the twen­ti­eth cen­tury, fun­ded per­so­nal sche­mes became the fashion – eit­her to supp­le­ment the state pen­sion (Riesterrente) or to replace it (as in CEE states).

According to market-based argu­ments, per­so­nal fun­ded pen­si­ons allow the indi­vi­dual to choose a ‘best value’ pen­sion and mar­kets offer per­so­na­li­sed pro­ducts at opti­mal pri­ces. However, asset returns have been poor recently and pro­blems have emerged.

  • First, choice is expen­sive: ‘exter­na­li­ties’ (asso­cia­ted admi­nis­tra­tive costs) are high for per­so­nal, par­ti­cu­larly volun­tary, pen­si­ons – exa­cer­ba­ted by the mul­ti­p­li­ca­tion of pro­ducts and providers.
  • Second, as levels of finan­cial liter­acy are ina­de­quate, prin­ci­pal – agent pro­blems pro­li­fe­rate: astute sale­speople can take advantage.
  • Third, as people move, change name (etc.) volun­tary per­so­nal sche­mes gene­rate orphan funds among those who move in and out of employ­ment, or who migrate (these pen­si­ons are rarely por­ta­ble). Such people are often on low inco­mes and the costs they incur are hig­her, exa­cer­ba­ting income dis­pa­ri­ties alre­ady appa­rent in working life into old age. This is par­ti­cu­larly the case for women, whose working lives rarely con­form to the 40+ years full-time stan­dard on which pen­si­ons are calculated.
  • Finally, few people under­stand how annuity mar­kets work and the final pen­sion is fre­quently a single-life, non-indexed pen­sion that lea­ves the widow stran­ded when the reci­pi­ent dies. Women form the majo­rity of the popu­la­tion of pen­sio­nable age. The whole sys­tem reflects a male bre­ad­win­ner model from which it is deri­ved and only offers value to a mino­rity of pensioners.

Nearly all these issues reflect co-ordination pro­blems: as they have become more appa­rent, so govern­ments have moved in to regu­late out some of these effects. While this is both necessary and prai­se­wor­thy, it rai­ses com­pli­ance costs and crea­tes incre­a­sin­gly uni­form pen­sion pro­ducts, the­reby cons­trai­ning com­pe­ti­tion based on qua­lity and price that are the sup­po­sed advan­tage offe­red by market-based per­so­nal pensions.

This is not to argue that state-based pen­si­ons of the tra­di­tio­nal type can and must be revi­ved: edicts impo­sed by EMU make this impos­si­ble – a jud­ge­ment endor­sed by glo­bal bond mar­kets. However, future reti­re­ment pro­vi­sion must com­mand collec­tive con­fi­dence and trust if it is to be via­ble and this means a rene­go­tia­ted sett­le­ment that offers secu­rity for all rather than exac­ting penal­ties on the most vul­nera­ble in the community.

Noel Whiteside

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