S P & A 0144–5596
V. 39, No. 7, D 2005, . 764 –785
© 2005 The Author(s)
Journal Compilation © 2005 Blackwell Publishing Ltd, Garsington Road, Oxford OX DQ , UK and
Main Street, Malden, MA , USA
Blackwell Publishing, Ltd. Oxford, UK SPOL Social Policy & Administration - © Blackwell Publishing Ltd. December Original Article XX XX
When Do Benevolent Capitalists Change Their Mind?
Explaining the Retrenchment of Defined-benefit Pensions
in Britain
Paul Bridgen and Traute Meyer
Abstract
This paper explores the politics of welfare retrenchment, but differs from much of the current
literature in this area by focusing not on the decisions of politicians but those of private sector
employers. In countries with a large private welfare sector, employers are major social policy players
with a significant influence on the generosity of welfare provision, but the rationale behind their
actions is not well understood. To explore these issues, a case study is used of the recent funda-
mental change in UK occupational pension provision, involving a rapid shift from defined-benefit
to defined-contribution pensions. The paper shows by means of a micro-simulation of the relative
performance of defined-benefit, defined-contribution and state pensions that this shift represents a
significant retrenchment. It suggests, using historical material, interview data and insights from
behavioural economics, that existing explanations for this change, while valuable, have important
gaps because they are based on too narrow a conceptualization of business motives. In this regard,
the paper highlights the importance of herd behaviour.
Keywords
Occupational pensions; Employers; Retrenchment; Britain; Private social policy-making;
Herd behaviour
Introduction
Over recent decades a lot of thought has been given to the causes that
prompt welfare states to contain spending, to retrench, or to adjust to new
modernization challenges despite declining resources. Considerable attention
has also been paid to the strategies politicians employ when retrenching key
programmes. How can they remain popular despite cuts? What alliances do
they need to achieve a reduction in spending? How have they built new
redistributive equilibria?
Address for correspondence: Paul Bridgen, Traute Meyer, School of Social Science, University of
Southampton, Highfield, Southampton, SO BJ. Email: Paul.Bridgen@soton.ac.uk; T.Meyer@soton.ac.uk