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date: 17 October 2018

The Agenda

Abstract and Keywords

Recent volatility in global financial markets has raised the spectre of wholesale changes in the structure and value of employer-provided pension plans and private insurance arrangements across the Anglo-American world. These circumstances are, in effect, accelerating long-term trends as the shift from defined benefit plans to defined contribution systems and private insurance contracts expose beneficiaries to the full force of market risks previously assumed by employers and other financial and political institutions. This article proposes to present in the book a comprehensive overview of the major intellectual frameworks and principles, analytical methods and techniques, and policy-related tools regarding nation-state pension and retirement income institutions. Demographic ageing, the changing financial circumstances of nation-states, and the forces of globalization necessitate the reassessment of inherited institutions and policies.

Keywords: financial markets, pension plans, private insurance, market risks, retirement income, globalization

Nation-states around the world are growing increasingly uneasy about their capacity to deliver retirement income to those approaching retirement age. In most cases, the implicit or explicit compact between generations and between different groups in societies will be rewritten to lower benefits. Sometimes quietly discussed and other times disputed in the pages of the financial press, the inability to sustain the living standards of an ageing population may prompt a long drawn-out conflict between generations. In a world of increasing economic integration and head-tohead competition for markets, few countries can afford to impose upon working people and their enterprises the taxes necessary to sustain long-term living standards for retirees. The risk is not that of poverty in the industrialized world—paying to keep the elderly out of poverty in the OECD is affordable—but that expectations about replacement rates will be difficult if not impossible to manage.

For the developed and industrialized economies these changes have been well documented. Think-tanks, governmental inquiries, lobby groups, and academics have all pointed to the ageing of the population as the most challenging issue confronting pension and retirement income institutions over the next 25 years. We know that demographic ageing is the result of lower fertility rates in younger and successively smaller age cohorts on the one hand, and increased longevity of older workers on the other. Compounding these trends, of course, have been restrictions upon migration to many European countries and the concentration of migrant streams to certain jurisdictions within those nations. It is inevitable that the (p. 4) baby-boom generation now approaching retirement and future generations will have to work longer than expected and retire on lower-than-expected incomes.

For the less developed world, transition economies, and the rapidly developing economies of Asia, issues of ageing and pension costs also loom large, though farther into the future so they have more time to deal with the problems. For example, what kind of pension and retirement income institutions ought to be introduced to replace state-sponsored institutions? Can systems modeled on the theories and experience of North America and Western Europe improve long-term standards of living? For that matter, in the two largest populated economies of the world—China and India—can inherited theoretical frameworks provide insights about the pension and retirement income consequences of industrialization, urbanization, and ultimately (even if delayed) demographic ageing?

Recent volatility in global financial markets has raised the spectre of wholesale changes in the structure and value of employer-provided pension plans and private insurance arrangements across the Anglo-American world. These circumstances are, in effect, accelerating long-term trends as the shift from defined benefit plans to defined contribution systems and private insurance contracts expose beneficiaries to the full force of market risks previously assumed by employers and other financial and political institutions.

1 Goals of the Handbook

The Oxford Handbook of Pensions and Retirement Income offers a comprehensive overview of the major intellectual frameworks and principles, analytical methods and techniques, and policy-related tools regarding nation-state pension and retirement income institutions. Demographic ageing, changing financial circumstances of nation-states, and the forces of globalization compel us to reassess our inherited institutions and policies. We must rethink the accepted frameworks and principles underpinning retirement income institutions to provide the basis for academic, industry, and policy-related research to move forward in the future.

To carry out this re-evaluation, we need to identify the relevant issues in relation to the structure and performance of different types of pension systems and to assess recent research so as to cast a critical eye over contemporary issues. We also need to be conscious of what was inherited from the past and how the past casts both an institutional and intellectual shadow over what may transpire in the future. In this regard, the goals of the Handbook can be summarized as follows: (p. 5)

  • to bring together in one book a comprehensive statement on the theoretical frameworks used to understand the structure and performance of pension and retirement income institutions;

  • to demonstrate the significance of the historical, social, and demographic context in which these institutions have developed, and an appreciation of the economic and financial drivers of pension and retirement income benefits;

  • to report the latest research on these topics in a manner that is accessible to a non-technical academic audience from social sciences, economics, and finance, thereby being the reference point for research and teaching at the advanced undergraduate, graduate, and professional levels;

  • to reach out from the developed world, with its own theoretical frameworks and methods of analysis, to the transition economies, developing economies, and the less developed economies facing similar issues;

  • to be a source of information, commentary, and expertise relevant to policymakers, financial institutions, and the financial services industry involved in the provision of pension and retirement income.

These goals are ambitious given the variety of pension and retirement income institutions around the world. But, of course there are important commonalities, overlapping points of reference, and related programs of pension reform. One of the challenges of the book has been to relate commonalities with differences, drawing on shared intellectual frameworks and traditions. As a consequence, the book is large and full of argument and analysis provided through 42 chapters and more than 50 contributors. It will be up to our readers to judge whether we have achieved our goals.

2 The Theoretical Challenge

Hidden just below the surface of this brief commentary is a complex world of nation-state institutions, social and political expectations, and financial markets. We hope that the selection of topics, contributors, and disciplinary perspectives provides the reader with an understanding of the significance of these institutions and their intersection. Our point in making these observations is twofold: across the world, the prospects for pension and retirement income are quite uncertain, and the consequences of current and prospective economic circumstances combined with long-term demographic strains have raised profound intellectual and policy-related questions about the sustainability of our inherited institutions.

(p. 6)

It would be misleading to suggest that academics have ignored these types of issues. Quite the contrary. Considerable research has been devoted to the introduction, evolution, and current problems facing national welfare states. See, for example, the remarkable literature prompted by Esping-Andersen (1990). At the same time, an increasing body of research has addressed the impact of changing economic, demographic, and social organizations on the value and structure of retirement incomes. See, for example, the related literature on gender and inequality (Whiteside 2003). Similarly, a rather technical literature has developed in economics on comparative pension systems, the financial aspects of private pensions, and the cost and consequences of annuities. See, for example, the volume edited by Feldstein and Siebert (2002). For those seeking detailed knowledge of national social security institutions, researchers have produced compendiums on the rules and regulations governing retirement systems. See, for example, Gillian (2000).

In the next chapter, we review the literature of the most important research themes, institutions, and academic perspectives that define the field. Since our goal is to provide the reader with broad-ranging perspectives on pension and retirement income across disciplines, we draw on literature from the humanities, social sciences, and a number of disciplines in the life sciences, rather than remaining sheltered behind the walls of any one discipline. One of the challenges in the development of the academic field of pension and retirement income is the need to sustain a broad perspective of the relevant issues as well as a deep technical understanding of the design and implementation of particular pension systems.

Furthermore, much of the literature has treated pension and retirement income questions as being entirely contained within nation-state borders. Looking forward, however, any comprehensive understanding of pension and retirement income systems must be set within the context of globalization. A global perspective recognizes the movement of people across borders, competition between corporations within industries, and the allocation of rights and entitlements by citizenship or geographical location.

And yet, for all the significance of increased globalization, our pension and retirement income systems have come out of twentieth-century nation-states. Deeply embedded in this volume, therefore, is a tension between the heritage of pension and retirement income systems set against current and prospective trends. The challenge is to simultaneously recognize our inherited institutions and practices, while looking forward to new kinds of intellectual frameworks and institutions. Only by combining these two aspects can we find inventive solutions to the challenges posed by global competition and demographic ageing. Our intention is that the structure of the book, the topics identified, and our contributors provide the groundwork necessary for this ambitious intellectual enterprise.

(p. 7) 3 Structure and Organization

In designing the book with respect to both its contents and its contributors, we were mindful that understanding the challenges facing pension and retirement income institutions requires an appreciation of the past, present, and future. At the same time, this enterprise requires a detailed understanding of the structure and performance of particular kinds of pension and retirement income systems. In what follows, we sought to present these elements in ways that allow the reader to use the book as a general text as well as a reference point. As a consequence, we have recruited contributors with a variety of skills and perspectives.

To begin, we (as the editors) use the Preface and this chapter to set the book in a most general and broad-ranging context, applicable, we hope, to readers around the world. Inevitably, we begin from our own experience and knowledge of developed economies over the past 50 years or so. We can hardly do otherwise. At the same time, contributors from around the world with extensive experience in both developed and developing economies enable readers to appreciate the variety of pension and retirement income systems. Having set the agenda in this chapter, we go on to look at pension research over the past 40 or 50 years in order to provide academics and those with an interest in the development of the field with a better understanding of where we have come from and where we might be going.

Thereafter, the book is organized into five major parts, with each part being organized around a series of sections and themes. Part I provides the reader with important historical, social, and economic perspectives on the field. It is vital to understand both the history of retirement and the significance of pension and retirement income systems as social and economic institutions. The origins of these institutions are rooted in debates stretching back over at least a century. And yet, of course, one lesson of Part I is that the past is not necessarily the future. In many respects, the future of pension and retirement income systems is increasingly on a collision course with the economics of demographic ageing. These systems are increasingly in play as the objects of political argument and dispute. We return to this issue in Part V of the book.

In Parts II, III, and IV we look at the provision of retirement income through public pensions, employer, or third-party pension provision, and then individual or household saving. This structure reproduces the logic to be found in many other reports on pension and retirement income provision. These three ‘pillars’ hardly ever exist alone; almost all countries provide pension and retirement income through a combination of these three types of pension systems. Of course, the combination of pension institutions and their relative contributions to total retirement income vary considerably between countries in the developed world, and can be very different indeed in the underdeveloped world where family and household systems provide the bulk of old-age support.

(p. 8)

Public retirement plans often provide more than retirement income and include bundles of benefits and obligations. Likewise, employer-sponsored retirement plans should be thought of as financial systems as well as systems of negotiation and accountability. We emphasize this kind of institution precisely because of its contemporary significance in the debate over social security reform. Another important issue is the role that housing wealth may play in the long-term welfare of middle-class retirees. Likewise, longer life and restricted nation-state budgets may imply far greater family responsibilities than commonly assumed over the past 50 years or so.

The last part of the book looks ahead. This section is by necessity speculative because whatever happens in the future will depend on the interplay between politics, economics, and social welfare forces. Looking back to the nineteenth century, we can see in debate about old-age pension provision just how fragile were coalitions of support for retirement income provision and the remarkable juxtaposition of events, personalities, and economic imperatives in reform initiatives. Surely one of the most important developments affecting the provision of pension and retirement income will be globalization, its effects on nations’ revenue and expenditures, industry competition, and political conflict. Although we do not have a crystal ball, we asked our contributors to think about prospective models of pension provision and important research frontiers that a new generation of researchers might take seriously. In thinking about the future, it is also important to understand what is happening in Latin America, East Asia, and Africa. In conclusion, we have asked two contributors to look back and forward about the most problematic issue of securing retirement itself.

4 Our Readers

It is anticipated that the Handbook will have three main groups of readers. Its primary market will be upper-level undergraduates, graduate students, and academics in economics, finance, social policy, economic geography, and politics (in that order). It will also have considerable appeal for policy-makers and pension regulators and supervisors around the world. Finally, we expect that it will have a limited, but nonetheless important, market in the global financial services industry.

The audience for the Oxford Handbook cuts across the social science disciplines. Readers will recognize the importance of historical, sociological, and economic issues as well as crucial theoretical concepts of system design and performance. Our (p. 9) readers will also include those whose interests lie less in economics and finance and more in institutional structure and performance. Finally, our readers will also include those who have an interest in research on the pension and retirement income institutions in transition economies, developing economies, and less developed economies.

The intellectual agenda on pensions and retirement income is increasingly being set by multidisciplinary research programs inside and outside of universities. The constituencies with an interest in pension and retirement income institutions include the advocates of old-age welfare, their lobby groups, governments who face an enormous burden of accumulated benefit commitments, and financial institutions near and far that see markets for retirement welfare growing at the margins of existing institutions.

All these groups and organizations seek answers or at least clarity regarding the most important questions concerning pensions and retirement income, and it is to this broad constituency of interest groups that this Handbook is addressed.

References

Esping-Andersen, G. (1990). The Three Worlds of Welfare Capitalism. Oxford: Polity Press.Find this resource:

Feldstein, M., and Siebert, H. (eds.) (2001). Social Security Reform in Europe. Chicago: University of Chicago Press.Find this resource:

Whiteside, N. (2003). ‘Historical perspectives and the politics of pension reform’, in G. L. Clark and N. Whiteside (eds.), Pension Security in the 21st Century. Oxford: Oxford University Press, 21–43.Find this resource: