Nick Pearce: Growth regimes, statecraft and incremental change. Presentation at seminar Reforming social security – What can we learn from basic income experiments? 17.12.2021.

1. Growth regimes, statecraft and
incremental change: the ‘puzzling
success’ of UK pensions reform.
KELA, Helsinki, 17.12.2021
Prof Nick Pearce, Institute for Policy Research, University of Bath

2. The ‘puzzling success’ of UK pension
reforms
Our key research question:
How were comprehensive pension reforms in the UK successfully
developed, enacted and implemented from 2002 to 2015, despite
changes in government composition and the financial crisis? Why
were they not subject to policy conflict, electoral competition and
policy reversal?

3. Structure of the presentation
• The UK’s pension reforms and their implementation
• ‘Growth regimes’, the UK welfare state and pension policy
• Research methods and theory
• Findings
• Conclusions

4. The Turner Commission & UK
pension reforms
• The Turner Commission was established in 2002, made up of three members: Adair
Turner, Prof John Hills and Jeannie Drake.
• Backdrop was the decline in Defined Benefit (DB) schemes, low take up of voluntary DC
pensions, increased means-testing to tackle pensioner poverty, and political pressure
from the trade unions and Labour Party supporters to re-index the Basic State Pension to
average earnings.
• Turner Commission created with an initial remit to examine private pensions but soon
expanded this to cover state pension provision – despite HMT resistance.
• It produced 3 reports between 2002 and 2006, the recommendations from which were
(with some revisions to timing and scope) implemented from 2007 to 2015. The reforms
were comprehensive and interlocking.
• Key research question therefore asks: why did this reform package secure political
consensus and implementation despite the financial crisis, austerity, and changes in
government composition? Why did the UK not suffer the same fate as many other OECD
countries, with partisan policy conflict, policy instability and reversal of pension reforms?

5. UK Pension Reforms: Summary
• A more generous, single tier State Pension uprated by a ‘triple-lock’ of the
(highest of) average earnings, inflation or 2.5%, coupled with the abolition of
the State Second Pension. The State Pension is currently set at £179.60 a
week (i.e. just above the minimum income level of means-tested support
provided through Pension Credit and approx. 30% of median earnings).
• A second tier of funded, defined contribution (DC) pensions, with automatic
enrolment into workplace pensions, and the freedom to opt out: in 2021/2,
workers contribute 4%, employers 3% and the state 1% (via tax relief) on
qualifying earnings.
• The creation of a state-run DC scheme, the National Employment Savings
Trust (NEST) mainly targeting low to medium income earners and their
employers;
• Progressively stepped up increases in the state pension age from 65 to 68
(currently 66, rising to 67 between 2026-2028, and 68 between 2037 –
2039).

6. The State Pension has increased in real
terms, in contrast to other benefits
Source: Resolution Foundation

7. Auto-enrolment has significantly
improved participation in workplace
pensions
Source: DWP. Overall 88% of eligible employees (19.4 million) were participating in a workplace pension in 2020. Overall trends in participation have
increased since 2012, driven by the private sector while public sector participation has remained high.

8. NEST enrolments & pot values
Source: NEST 2021

9. But the UK still has relatively low net
pension values and high pensioner poverty
Source: House of Commons Library/OECD Pensions at a Glance, 2019

10. ‘Growth regimes’
• ‘Growth regimes’ theory (Hassel & Palier, 2021) builds on Varieties of
Capitalism literature, introducing neo-Kaleckian demand-side national
growth models (Baccaro & Pontussen, 2016, 2021) and political-
economic study of welfare regimes.
• Three key components of growth regimes – main sectors driving
growth, institutions organising the economy, and main components of
aggregate demand
• Five ‘growth regimes’ identified by Hassel & Palier: 1/ Balanced
exports and domestic demand, services, ICT (Nordics + Netherlands)
2/ Manufacturing, export-led (Germany, Austria, Belgium, CH) 3/FDI-
manufacturing, export-led but high domestic demand (CEE)
4/Domestic consumption, ICT/finance (US, UK etc) 5/Domestic
consumption, public sector + low ICT, finance (France, S.Europe).

11. UK growth regime and welfare state
• UK paradigmatic of domestic consumption-driven liberal market economy,
with extensive role for financial sector, high skill ICT services and
housing/property sector. Limited role for manufacturing & persistent current
account deficit on goods. Deregulated labour market and skill formation via
general education and HE. Shareholder corporate governance.
• The UK’s welfare state supports this growth regime. Extensive role for
financial sector and private savings in pensions and housing. Social security
benefits are parsimonious and flat rate, with extensive means-testing. ‘Work-
first’ conditionality, rather than wage replacement. Higher education
functions as wage insurance mechanism.
• UK pension reforms consistent with this growth regime: major role for private
finance, via 2nd tier DC pensions; flat rate Beveridgean State Pension; no
return to earnings replacement/DB. But why no partisan electoral
competition over the reforms, and political-economic conflict?

12. Research Methods
• The research was designed as a single case study based on elite semi-
structured interviews.
• 30 elite semi-structured interviews conducted in 2019 with core political actors:
former Prime Ministers (2), departmental Secretaries of State and Ministers
(5), Special Advisers (5), the members of the Turner Pensions Commission
(3), civil servants (7), interest groups (4), academics experts (3), and
journalists (1) who were involved in any or all of the stages of the reform
process or had in-depth knowledge about the pension reforms.
• We studied the period between 2002 and 2015, from the appointment of the
Pensions Commission (2002–2006), to the enactment of its recommendations
under the third term of the Labour government (2006–2010), and
implementation by the Conservative-Liberal Democrat Coalition government
(2010–2015)
• Data from the interviews was triangulated against evidence from documentary
sources, other participants’ recorded perspectives, and existing academic
literature stored in a UK pension policy archive
(https://researchdata.bath.ac.uk/846/)

13. Theoretical approach
• Actor-centred historical institutionalism: understanding the centrality
of political actors and the ‘policy entrepreneurs’ of the Turner
Commission (Mintrom)
• Incremental change, not reform via a critical juncture: institutional
evolution, ‘layering’ and temporality (Streeck & Thelen)
• Ideas and agency: core ideas and frames mobilised by political
actors, such as behavioural economics, and the ‘coalition magnet’
of long-term, ‘enduring’ reforms (Beland & Cox, Cartensten)
• Growth regime provides institutional framework

14. Findings /1
• Institutional continuity and the creation of an elite coalition-space
• The reforms maintained the liberal Beveridgean structure of UK pensions,
reducing the role of means-testing and expanding private/voluntary savings. No
compulsory savings or return to earnings-related pensions. Comprehensive but
institutionally constrained.
• NEST was created with a public obligation, but not as a default state provider of
DC pensions – minimising opposition from finance sector
• ‘Nudge’ auto-enrolment – use of ideas to legitimate lack of compulsion
• This created a coalition space for an elite political consensus
• ‘Bracketing’ of electoral competition in policy design and implementation
• Critical constituency of older voters largely exempted from costs of reform, but
benefited from increases in State Pension
• SMEs: reforms staged to minimise costs of auto-enrolment on small employers
and their employees

15. Findings /2
• Incremental layering and interest groups
• Quid-pro-quo for interest groups. Trade unions got increased state pension
and auto-enrolment, but conceded increases in the SPA. Employers secured
limited auto-enrolment/payroll costs. Finance sector retained DC pensions
and got stability of single-tier state pensions and roll-back of means-testing.
• The reforms therefore minimised the potential for interest groups to mobilise
opposition but did not create a new social coalition for change
• Temporality and political agency
• Centrality of political actors visible throughout reform process. No10 vs HMT
split resolved over re-indexing the state pension to earnings. Consistency of
elite consensus maintained in the Coalition government (‘Two liberalisms’).
• Reforms staged and implemented in order not to conflict with austerity (ending
of NI rebates.

16. Conclusions
• Institutional continuity with the Beveridgean policy legacies of the pension
system and the UK’s ‘growth regime’ enabled a coalition space to open up for
policy agreement between the government and Opposition parties, and for
partisan electoral competition over the reforms to be ‘bracketed’.
• The incremental and interlocking nature of the reform package reduced interest
group opposition and enabled a centralisation of decision-making power in the
executive of government and between the governing party and Opposition
parties.
• A long-term timeframe for reform cemented the formation of an elite coalition
and buttressed political control. Cross-party support for the reform package,
coupled with judicious phasing of the implementation of auto-enrolment and
fiscal reforms that realised short-term gains and distributed costs over the
medium and longer term, enabled it to withstand the impact of the 2008 financial
crisis and the austerity that followed it, and to minimise the scope for opposition
among the critical electoral constituency of older voters.

17. Conclusions
• The dynamic bargaining to achieve successful pension reforms was
dominated by politicians and their ‘statecraft’ strategies, rather than interest
group coordination or conflict. Social class and sectional interests were
managed within incremental reform of existing institutions by political actors
and policy entrepreneurs. The scope for distributive conflict between social
classes and demographic groups was minimised by spreading out the
reforms over time, and ruling out certain options, such as the restoration of a
significant earnings related pension scheme and defined benefit occupational
schemes, or compulsory contributions. Partisan competition was held in
check by limiting the possibilities of ideological fragmentation.
• But this came at a cost: institutional continuity and incrementalism foreclosed
alternative reforms to improve pension savings and raise incomes in
retirement. The relatively parsimonious nature of the Beveridgean welfare
state remains intact, and therefore the lessons of the UK reform process for
comparative study of pensions reforms may be limited to countries with
similarly liberal welfare states or under-developed social security systems.

18. References
https://www.youtube.com/watch?v=Ao8-HnCmJos
Massala T, Pearce N. Statecraft and incremental change: Explaining the success of
pension reforms in the United Kingdom. The British Journal of Politics and
International Relations. September 2021. doi:10.1177/13691481211044655
Pearce, N, Massala, T (2020a) Data from UK Pension Reforms (1997-2015). Bath:
University of Bath Research Data Archive. Available at:
https://doi.org/10.15125/BATH-00846
Pearce, N, Massala, T (2020b) Pension Reforms in the UK: 1997 to 2015. London:
Nest Insight. https://www.bath.ac.uk/publications/pension-reforms-in-the-uk-1997-to-
2015/attachments/pension-reforms-uk.pdf