Democratic Governance of Funded Pension Schemes

The project Democratic Governance of Funded Pension Schemes (DEEPEN) aims to explore to what extent citizens can influence decisions within funded private pension schemes. Almost every European citizen will receive pension benefits at some point in their later life. Governments in Europe have decided, for various reasons, that future pension benefits will depend much more on financial markets than today. This will very likely result in lower levels of power of individuals but also governments over investments and the level of benefits, because financial market actors often escape democratic control. People pay their contributions and cannot influence what happens in-between until they retire. This means that European citizens cannot decide how and where their contributions are invested (e.g. whether in firms or states, whether in firms producing weapons or solar panels) nor can they express their (dis)satisfaction with, for example, lower than expected pension benefits. This can be a danger for a country and its democracy, when individuals have the feeling they do not have any impact on decision-making processes and their later old-age income. Therefore, knowledge about what type of governance structures of funded pensions exist and how individuals evaluate them will help to improve individual satisfaction with pension outcomes and welfare states and the quality of democracy. We are interested in the input legitimacy of funded pensions that means influence of participants on decisions, and the output legitimacy that means individual satisfaction with the outcome (e.g. level of benefits). Our research questions are to what extent individuals can participate and influence the decision-making process of funded pensions in different European countries and whether they make use of it. Furthermore, we explore the outcome of funded pensions and want to know whether they meet individuals preferences and how supportive the population is of funded pensions. This project is the first European research to collect and combine information from individua ls, pension schemes and countries on the democratic legitimacy of funded welfare. Understanding how citizens perceive and react to the growing dependence of their pension benefits on financial markets is crucial for the current and future development of pension regimes in European democracies, as well as the political legitimacy of the welfare state in 21st century Europe. The project combines case studies of six countries and five pension schemes in each country based on expert interviews and the analysis of documents with analyses of existing datasets on pension outcomes (e.g. benefit levels). In addition, we integrate individual preferences by asking them with online questionnaires on their attitudes toward funded pensions, because existing data only refer to public pensions. The project focuses on Austria, Germany, Denmark, the Netherlands, Ireland and Spain because they vary on key dimensions relevant to capital- funding and democratic control.

The project "Democratic Governance of Funded Pension Schemes" was interested in the input legitimacy of funded pensions - that means influence of participants on decisions -, and the output legitimacy - that means individual satisfaction with the outcome (e.g. benefit levels). Our research questions were: To what extent can individuals participate in the decision-making process of funded pensions? Are citizens satisfied with the design and outcomes? To answer the questions, interviews were conducted with pension experts, documents were reviewed and a separate online survey was conducted among the population in six countries (Austria, Germany, Denmark, the Netherlands, Ireland and Spain). The project first looked into whether people are aware of pension reforms. We found that changes to pension rules, like making them more generous or cutting back benefits, catch people's attention independent of reform details. This is important for exerting democratic control since people can reward or punish governments only when they recognise pension reforms. In a next step, we investigated the type and degree of input legitimacy. We found that in some countries representatives of pension plan members are heavily involved in the decision-making processes of occupational pension schemes and represent their rights with a strong voice (Denmark and the Netherlands), while in countries without such representative structures plan members can make certain decisions on their own (e.g. Ireland and Austria), although they often lack knowledge of the details and the existence of these rights. Procedures providing a source for legitimate decisions that address a wide range of citizens instead of leaving it to individual decisions are an important feature for the governance and democratic control of funded pensions. In addition, we asked citizens about their attitudes towards funded pensions using an online questionnaire. The project created a new way to measure people's satisfaction with their participation in decision-making processes and with the outcome of decisions. We discovered that satisfaction levels are medium-high and pretty similar across countries. We also found that people who take an active role in their pension plans-like information gathering (e.g. reading information provided by the occupational pension scheme) and getting involved in decisions (e.g. via online activities such as writing emails and participation in meetings/discussions)-are more satisfied. This matters because if people don't feel their input matters or if they are not satisfied with the outcome, they might lose trust in the overall pension system. Furthermore, we were interested in what encourages people to save more for retirement. We found that when pension funds make good returns on investments, when they involve participants in decision-making, or when they consider environmental or social issues in their investments people are more willing to save extra money for retirement.