The substitutive state? Neoliberal state interventionism across industrial, housing and private pensions policy in the UK

This article advances the notion of ‘the substitutive state’ to explore the changing character of state institutions and state action in the context of neoliberalization. This understanding is contrasted with alternative accounts of state neoliberalization such as ‘the regulatory state’ and ‘the competition state’. It focuses upon the UK, and three domains of economic statecraft in particular: industrial policy (primarily the May government’s 2017 industrial strategy), housing policy (primarily extensive support for mortgage lending and borrowing since the 2008 financial crisis) and private pensions policy (primarily the establishment of state-owned pension scheme providers in the context of ‘automatic enrolment’ regulations). The article argues that state action in the UK increasingly encompasses new mechanisms for intervention in the private economy. However, associated policy practices are rarely strategic or purposeful. Interventionist mechanisms are often populated by the private economic actors implicated in the problem intervention is designed to solve, or are used to relieve the private sector from serving unprofitable market segments. Substitutive statism is aligned with a wider accumulation regime which state actors perceive as immutable; they are therefore willing to intervene to sustain this regime, irrespective of market signals. In short, state institutions have a more expansive interventionist footprint, but are doing less with more. In contrast to accounts of ‘the neoliberal state’, we should not assume that these institutions add up to ‘ the state’, albeit a state with neoliberal characteristics. State action has always been a central, organizing element of neoliberalism, although its form has evolved as neoliberal ideas confront capitalist accumulation in practice.

The Pensions Multiverse

The form that pensions provision takes is far from uniform, even among highly developed capitalist economies. This chapter surveys this diversity, but also the flawed ways in which pensions variation is usually understood, in both officialdom and academic scholarship. The intention, however, is not to replace one typology with another; while some of the most important differences across countries are actually understated, there is also a tendency to overstate systemic differences based on a highly parsimonious account of varieties within (welfare) capitalism. The chapter considers the main features and implications of pensions provision across many developed and developing countries, and recent reform agendas (including Europeanization), and develops a new approach to understanding private pensions in capitalist economies with reference to the temporal and cross-generational nature of provision.

Auto-Pilot

This chapter considers in depth some of the key elements of the new landscape of individualized pensions provision in the UK, reflecting in particular on some of the state’s emerging functions as facilitator, regulator, and provider of defined contribution pensions. It charts how the Pensions Commission’s vision for state-managed defined contribution was subtly marginalized, resulting in an approach which enables and indeed privileges privatized delivery of auto-enrolment, leaving private pensions provision caught between two radically different regulatory regimes, and rendering the state unable to act decisively to protect individual welfare. The chapter also discusses decumulation processes, including the Coalition government’s radical and highly destructive reforms to the annuities market, and the peculiar role played by pensions tax relief—providing a largely ineffective saving incentive, albeit at great expense.

Many Happy Returns? Investment Governance and the Political Economy of Time in UK Pensions Provision

We are increasingly conscious that private pension schemes in the UK are primarily financial institutions. UK private pensions provision has always been highly financialized, but the individualization of provision means this dynamic matters more than ever to retirement incomes. Furthermore, individualization has occurred at a time when the UK economy’s capacity to support a long-term approach to capital investment, upon which pensions depend, has declined. The chapter argues that pensions provision essentially involves managing the failure of the future to resemble the present, or more specifically present forecasts of the future. As our ability to manipulate the value of the future has increased, our ability to tolerate forecast failure has declined. The chapter details how pension funds invest, and how this has changed, and provides an original understanding of several recent attempts to shape pensions investment, ultimately demonstrating the limitations of pensions policy in shaping how provision functions in practice.

Introduction

The UK pensions system is in danger. How did we get here? Moreover, what exactly is it that is endangering UK pensions? This introductory chapter explores the main narratives of pensions crisis in elite and public discourse in the UK—centred around population ageing and increased longevity—and argues instead that pensions imperilment is a product of the UK’s dysfunctional political economy. Traditional private pensions practice has become increasingly incompatible with the financialization of economic life. The chapter introduces the book’s key analytical concepts, such as financialization and statecraft, and explore how the social sciences, particularly political economy scholarship, tend to treat generational change and inter-generational relations. Understanding private pensions provision as a set of temporal management mechanisms, organized cross-generationally, is integral to understanding the source of pensions imperilment—and how it can be overcome.

Pensions Imperilled

Private pensions provision in the United Kingdom is in crisis—but it is not the crisis often depicted in political and popular discourses. While population ageing has affected traditional pensions practice, the imperilment of pensions is due in fact to the incompatibility of pensions provision’s peculiar temporality with the financialization of the wider economy. This book offers a political economy perspective on the development of private pensions, focusing specifically on how policy elites have sought to respond to perceived crises of demographic change, undersaving, and fund deficits, and in doing so absorbed imperatives to subject individuals to a market-led regime under the influence of neoliberal ideology. This terrain is explored through chapters on the historical and comparative context of UK pensions provision, the demise of collectivist provision, the rise of pensions individualization (and the state’s role as facilitator and regulator in this regard), and the financial and economic context in which pensions provision operates. The book offers an original understanding of the unique temporality and materiality of pensions provision, as a set of mechanisms for coping with generational change and forecast failures in capitalist economies. Accordingly, it also offers a nuanced account of pensions statecraft, challenging a tendency in the existing literature to focus on the boundary between state and market, rather than how the pensions market operates (and the state’s role in this). The book ends by outlining a coherent and radical programme of progressive pensions reform, steeped in the author’s experience as a policy practitioner.

The Liberal Collectivist Experiment

This chapter provides an overview of the historical development of UK pensions provision, focusing on the main philosophical or ideological foundations of different elements of provision, how they fit together, how they have evolved, and the major policy initiatives that have both instituted and transformed UK pensions provision at different points in time. It focuses primarily on the post-war period, but actually locates the genesis of UK pensions provision in the seventeenth century, and details the birth of occupational pensions provision in the late nineteenth century. The chapter shows that the UK policy elite’s commitment to a liberal market order both shaped and constrained the development of public and private pensions provision—providing for a fragile patchwork of institutional and industrial practices, which were unravelled by the emergence of neoliberalism. Overall, the chapter situates the development of UK private pensions provision within the context of shifts within productive activity and industrial relations.

A Good Innings? The Demise of Collectivism in (Mostly) Private Pensions Provision

In UK private pensions provision, collectivism has not quite gone, but it is in danger of being forgotten. This chapter focuses mainly upon defined benefit occupational pensions in the private sector, albeit in the context of wider collectivist commitments in dominant forms of provision, and indeed acknowledging that the state plays a crucial role as regulator, guarantor, and provider of private, occupational pensions. It reflects on the immense (and underappreciated) differences between defined benefit and defined contribution provision (and flawed attempts at creating hybrid forms of provision), before discussing in depth the political and economic factors behind defined benefit’s demise. It also considers recent efforts to regulate, reform, and rescue collectivist pensions in the private and public sectors—finding the state largely incapable of reducing the defined benefit ‘burden’ without itself instead acquiring the employer’s role as temporal anchor.

False Dawn

The introduction of auto-enrolment in the UK is a genuinely transformative moment. While the earlier neoliberal ‘revolution’ in wider economic governance encompassed important changes to pensions policy and provision, auto-enrolment encompasses an extensive set of reforms designed to alter how the vast majority of people engage with private pensions provision. However, the flaws in the approach established by the Pensions Commission in the mid-2000s—arising largely from its acceptance of the dominance of defined contribution—have created myriad new challenges for policy-makers, and indeed enabled subsequent elites to reinforce individualized and marketized provision (with inegalitarian outcomes) in a way that severely undermines the Commission’s plan. The chapter explores the hugely flawed imaginary of the individual and rationality encompassed by elite support for defined contribution saving, and the crude behavioural assumptions upon which auto-enrolment is based.