The Politics of Parallel Pensions: Lessons from the United Kingdom for the United States
Public old-age pension programs are the largest single item of public expenditures in most advanced industrial countries. These pension systems have been buffeted by a number of pressures for change in recent years, however, notably an aging population and uneven economic growth. Thus it is hardly surprising that pensions have received much attention from policymakers, both in the United States and abroad.
Pension policy in the advanced industrial countries over the past quarter century exhibit substantial commonalities as well as continued—in some cases, enhanced—diversity. The most commonality is found in pension policy agendas. This commonality stems largely from a similar set of forces: the demographic shock of a shrinking ratio of workers to pensioners as life expectancy rose and fertility declined, fiscal pressures resulting in part from slower economic growth, and competitive pressures to restrain payroll taxes and other non-wage- labor costs that finance public pensions. As a result, the wealthy industrialized countries have considered very similar sorts of incremental retrenchment mechanisms and payroll tax increases. Of course, these pressures were felt to varying degrees across countries. The United States, for example, faces both weaker demographic and fiscal pressures than many other wealthy countries, meaning that pressures for immediate reductions in Social Security spending have not been strong. The absence of strong pressure for immediate policy change in Social Security has in turn meant that there has not been a legislative vehicle that would facilitate changes in provisions involving caregiving and other “beyond austerity” concerns that have become more important over this period in other countries or improvements in the United States’ very weak income guarantee for the elderly.
Other, "politically mediated" pressures for policy change continue to be felt both in the United States and abroad. Common incentives for politicians to minimize blame clearly play an important role in explaining why governments in all of the rich countries have used delay, obfuscation and other blame-avoiding techniques to reduce the visibility and immediate effects of retrenchment, refinancing and restructuring initiatives. Which options were considered and how they were perceived to play politically were also heavily influenced by the nature of the existing pension regime.
Policy feedbacks also play a major role in how privatization options are framed and how far they advance. Unlike some Latin American countries and transitional economies in Eastern Europe, the wealthy industrialized countries have all built even their restructuring reforms on the foundations of their current systems. Differences in the role played by private pensions in these systems can in large part be explained by whether a country already had a robust public earnings-related pension prior to the early 1970s.
Overall, however, convergence of pension policy regimes in the wealthy countries has been limited for a number of reasons. Most important is the fact that change is path dependent: different policy regimes pose distinctive policy problems and opportunities for change. Most notably, countries where a large income-related pension system is already in place are likely to develop both substantial clientele support for such programs and have limited tax room for a mandatory system of individual accounts. This fact has contributed to the failure of the European Union to try to harmonize pension regimes in member countries—which has in turn further limited convergence. Thus while supra-national integration in Europe has sometimes stimulated retrenchment in individual countries, it has not had a significant effect on policy convergence.