Electronic copy available at: http://ssrn.com/abstract=2551521

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Feed the Beast: Finance Capitalism and the Spread of Pension Privatisation in Europe

Marek Naczyk, Department of Social Policy and Intervention, University of Oxford marek.naczyk@gmail.com

Bruno Palier, Centre d’Etudes Européennes, Sciences Po Paris*

bruno.palier@sciencespo.fr

Paper prepared for the 26th Annual Conference of the Society for the Advancement of Socio-

Economics, Chicago, July 10-12, 2014.

*We would like to thank Achim Kemmerling, Cornelia Woll, Charlotte Cavaillé, Stephen J. Kay, Andrew Tarrant, Dariusz Wójcik, Torben Iversen, participants of the 2013 RC19 annual conference in Budapest and those of the 2013 APSA Annual Meeting in Chicago for very helpful comments on an earlier draft of this paper.

Electronic copy available at: http://ssrn.com/abstract=2551521

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Abstract Why, since the mid-1980s, have so many European governments decided fiscally to support the development of private retirement savings accounts? Whereas analysts of pension reform in affluent democracies have traditionally considered the development of private pensions as a secondary outcome of welfare state retrenchment, we argue that governments have actively promoted their expansion as a result of financial industry lobbying. In the context of heightened competition between European financial centres that has accompanied the liberalisation and internationalisation of capital markets since the mid-1970s, stock exchanges, together with other financial services organisations, have started arguing that, by creating a vast and steadily growing pool of financial capital, private pension funds could play an essential role in strengthening the competitive position of their home country as a financial centre. Politicians have in turn been attracted to pension privatisation because a strong domestic financial sector could provide their country with greater investment capacities and help create new jobs at a time of deindustrialisation. As both market and political actors have observed policy developments in peer countries, the politics of pension privatisation has been marked by strong international interdependence and patterns of international diffusion. We support our argument through comparative process-tracing of pension reform in three very different cases, namely Great Britain, France and Germany.

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Introduction

Over the past three decades, European old-age pension systems have been marked by a move

away from the pay-as-you-go method of financing towards greater reliance on funding1 and

by a shift from defined-benefit to defined-contribution pensions2. Remarkably, this

transformation has affected countries which initially had very different pre-existing pension

systems (Ebbinghaus 2011), and has typically been supported by specific fiscal measures

aimed at incentivising people to put money aside in private pension funds. Thus, Great Britain

and Switzerland, both of which historically had basic public pensions and relatively extensive

employer-provided fully-funded defined-benefit plans, started fiscally stimulating ‘personal’

defined-contribution pensions and cutting public benefits in the mid-1980s. They were

followed during the second half of the 1980s by Belgium, Denmark, France, Spain and

Portugal, all of which introduced tax incentives for private retirement savings even before

they started cutting – later in the 1990s – their relatively generous pay-as-you-go benefits.

Other countries – including Norway, Italy or Germany – combined the retrenchment of their

public defined-benefit pensions with the fiscal promotion of individual retirement savings

accounts either in the 1990s or the early 2000s, with Sweden and a few East European

countries even making coverage of private personal pensions mandatory (Orenstein 2008).

How can we explain this general European trend towards active fiscal support for the

expansion of private defined-contribution pensions?

Influenced by Paul Pierson’s (1996, 2001) ‘new politics of the welfare state’, political

scientists have traditionally considered that the first objective of contemporary pension reform

1 In ‘pay-as-you-go’ systems, pensions are financed through direct transfers from the working-age population to pensioners, whereas in ‘fully-funded’ systems pension contributions are saved, invested and used to pay for future benefits. 2 In ‘defined-benefit’ plans, pensioners are guaranteed a set level of the salaries they used to earn as workers, whereas with ‘defined-contribution’ plans individuals are offered only the contributions they have paid into the system, plus returns.

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in affluent democracies has been to cut public benefits and to curb social expenditure.

Conservative and neo-liberal politicians have been shown to have launched an ideological

assault on the interventionist welfare state, because they have seen it as an impediment to

economic growth and individual freedom (Pierson 1994). Other politicians have started

restricting social rights because adverse economic and demographic conditions – such as the

slowdown in economic growth associated with the shift from manufacturing industries to the

generally less productive service sector and the changing ratio between pensioners and the

working age population – have created fiscal pressures and a climate of ‘permanent austerity’

that make it increasingly difficult for governments to honour their pension commitments

(Pierson 1998, 2001; Bonoli 2000; Huber and Stephens 2001; Bonoli and Shinkawa 2005;

Immergut et al. 2007; Häusermann 2010).

While it has shed considerable light both on the drivers of contemporary pension reform

and on the political obstacles to it, this ‘new politics’ perspective has generally assumed that

private pensions and the market are there only to fill the gap left by shrinking public pension

provision (Bonoli and Palier 2007). It has also considered a shift to greater private funding as

very unlikely because, by requiring that workers ‘continue financing the previous generation’s

retirement while simultaneously saving for their own’, pension privatisation results in a

‘double payment problem’ (Myles and Pierson 2001: 313). Yet, European governments have

decided actively to encourage the development of private defined-contribution pensions,

mainly by introducing generous tax deductions for this type of retirement savings, thereby

accepting to forego tax revenue at a time of growing fiscal pressures (Agulnik and Le Grand

1998; Howard 1999; Sinfield 2000; Hacker 2002; Yoo and de Serres 2004; OECD 2011: 156-

157). Moreover, some governments did so even before starting to cut public pensions. Why

has this been the case?

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To be sure, one could see the introduction of such tax loopholes as another side of the

ideological attack on the welfare state. It could indeed be part of a ‘starve the beast’ strategy

that – as promoted by American conservative elites during the Reagan era – consists in

reducing government revenue in order eventually to force politicians to cut public spending

(See Bartlett 2007). But, as will become clear from the rest of this paper, fiscal incentives for

private retirement savings have also been used by left-wing parties, even though these have

traditionally been considered as guardians of the welfare state.

We argue that, regardless of their ideological stance towards the welfare state and of the

challenges posed by demographic ageing, both right-wing and left-wing governments have

been increasingly attracted to pension privatisation primarily because, in a context of

deindustrialisation and simultaneously of growing internationalisation of finance, they have

been led to see the expansion of pension funds as a means to increase the competitiveness of

their domestic financial industries and therefore to boost their countries’ economic growth.

They have been interested in ‘feeding’ the private ‘beast’. A crucial role in persuading policy-

makers to follow this policy has been played by lobbying campaigns launched by financial

sector groups. Financial firms such as insurance companies or mutual funds have indeed a

strong a priori motive for developing a market in funded pensions, since it should profit them

as an industry. But they also have been able to deploy more general arguments about the need

for governments to support new types of economic activities in an era of deindustrialisation

and financial liberalisation.

A major impetus for pension privatisation in Europe was given by American authorities’

decision in the mid-1970s to liberalise financial markets and capital movements. While the

US initiative created a competitive dynamic that eventually led other countries to open up

their financial systems, it also spurred European financial services organisations, in particular

stock exchanges, to press more actively for the expansion of private pensions. In a context of

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financial liberalisation, these actors have argued that, by ensuring stable inflows of capital,

private pension funds could increase both the depth and liquidity of the domestic capital

market, thereby providing a crucial ingredient for the attraction of increasingly mobile

financial capital and the creation of new growth opportunities for the whole domestic

financial services industry. Thus, although financial sector groups have pushed for policy

changes at the domestic level, pension privatisation in Europe has been characterised by

international interdependence and diffusion, as market actors and governments have been

strongly influenced by institutional developments in peer countries.

Our argument is developed further in the next section. We then present our approach to

process tracing and case selection. The empirical section focuses on contemporary pension

reform in three very different cases, namely Britain, France and Germany. The final section

concludes and draws the implications of our findings for research on welfare state reform

around the globe and on the financialisation of different varieties of capitalism.

Private Pensions, Changing Growth Models and the Battle for Survival and Leadership

in European Finance

While in recent years students of pension reform in affluent democracies have

overwhelmingly investigated the political processes leading to benefit cuts and have seen the

privatisation of pensions as a secondary outcome of welfare state retrenchment, analysts of

social policy change in middle-income countries have started shedding light on governments’

positive motivations in promoting the development of private pension funds (Müller 1999;

Madrid 2003; Weyland 2005, 2007; Orenstein 2008; Brooks 2009). This different analytical

focus is not surprising because, by deciding to divert part of their social security contributions

towards mandatory individual – and private – retirement savings plans, a number of middle-

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income countries, particularly in Latin America and in Central and Eastern Europe, have gone

furthest in privatising their pension systems.

A widely held view among these scholars has been that, in policy-makers’ mind, the

expansion of private retirement savings had benefits of its own and could especially help

stimulate economic growth. In middle-income countries whose development had been

traditionally state-led and where private capital was typically scarce, pension privatisation

was seen as a way to increase domestic savings and to create a stable base of domestic

institutional investors who would improve companies’ access to investment capital.

Moreover, by developing domestic capital markets and by signalling governments’

commitment to market-oriented reforms, private pension funds could help improve the

confidence of increasingly footloose foreign – institutional or direct – investors and therefore

diminish the risk of capital flight (See Brooks 2002; 2007).

In this paper, we build on these insights. However, while analysts of pension reform in

Latin America and in Central and Eastern Europe have mainly emphasised the role played by

international financial institutions such as the World Bank and by reformist finance ministry

bureaucrats in bringing pension privatisation on the political agenda, we suggest that another

type of actors has been crucial in persuading European governments actively to promote the

expansion of private retirement savings.

Mitchell Orenstein (2008; see also Müller 1999 and Madrid 2003) has shown how a

transnational network built around the World Bank contributed to diffuse the pension

privatisation paradigm around the globe. The international financial institution published in

1994 a high-profile report entitled Averting the Old-Age Crisis in which it suggested that

governments should radically cut what it considered as financially unsustainable public

pensions and partly replace them with mandatory individual retirement accounts. The World

Bank strongly insisted that mandatory funded pensions were ‘an instrument of growth’ as they

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would ‘increase capital accumulation’ and ‘stimulate a demand for (and eventually supply of)

long-term financial instruments – a boon to development’ (World Bank 1994: 9, 13).

However, as emphasised by Orenstein, the campaign for pension privatisation launched by the

World Bank was primarily directed at developing countries. Moreover, the wave of pension

privatisation hit Western Europe already in the mid-1980s – i.e. well before it affected other

regions of the globe.

Reformist bureaucrats, particularly those working in ministries of finance, are the

second type of actors that have been considered as crucial in promoting private pension funds

in middle-income countries. Since these actors have traditionally been in charge of regulating

the financial system and of catering for the financing needs of the state, they have very often

been attracted by pension privatisation’s long-term promise to raise domestic savings and

build stable capital markets (Müller 1999; Mesa-Lago and Müller 2002; Madrid 2003).

Nevertheless, Sarah Brooks (2009) has highlighted that finance ministry bureaucrats have also

been responsive to concerns about the short- and medium-term costs of reforms: since

governments typically promote private pensions through generous tax deductions or more

radically through a diversion of social security contributions towards private pension funds,

pension privatisation threatens to result in a significant loss of revenue for the state budget

and can consequently increase sovereign debt and harm sovereign creditworthiness.

Technocrats have therefore often ‘advocat[ed] for governments to curtail, if not forego

altogether, pension privatization’ (Brooks 2009: 67). In affluent democracies’ climate of

‘permanent austerity’ (Pierson 1998), this type of trade-off between long-term benefits and

short-term costs can also be expected to have impacted Finance Ministries’ attitude towards

pension privatisation. What has nevertheless tipped the balance to governments agreeing to

introduce fiscal incentives for the development of pension funds?

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We argue that the driving force behind pension privatisation in Europe has been

lobbying campaigns launched by the financial services industry in the context of heightened

competition between European financial centres that accompanied the gradual liberalisation

and internationalisation of capital markets from the mid-1970s. When trying to persuade

politicians, financial services organisations started arguing that, by creating a vast and steadily

growing pool of capital, private pension funds were an essential element in strengthening the

competitive position of the domestic financial services industry. Policy-makers, including

Finance Ministries, were in turn attracted to the idea because a strong financial centre could

provide their country with greater investment capacities and help create new jobs at a time

when traditionally dominant manufacturing industries started declining.

The context that prompted this process was American authorities’ move in the mid-

1970s to liberalise their domestic financial markets. Between 1973 and 1975, the United

States decided almost simultaneously to abolish its restrictions on capital flows, to induce US

pension funds to diversify their portfolios internationally3 and to deregulate brokerage

commissions on the New York Stock Exchange. These decisions put other countries –

initially Britain and Japan, later other European nations – under pressure to liberalise their

capital markets as they did not want their own financial centres to lose business and capital to

New York (Helleiner 1994; Simmons 1999, 2001). In Western Europe, the

internationalisation of financial markets was further promoted by the European Economic

Community’s push from the mid-1980s for the creation of the Single Market in financial

services and the full liberalisation of capital movements by 1992 (Abdelal 2007). In addition

to these exogenous shocks, governments were also pressed to liberalise their financial systems

due to large – often multinational – firms’ growing need to tap international capital markets

3 Through the Employment Retirement Security Act (ERISA) of 1974.

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and because of a perceived need to diversify the sources of funding for small- and medium-

sized enterprises (Goodman and Pauly 1993; Deeg 2009).

At the same time as capital markets were liberalised, financial services organisations

began vigorously campaigning for the development of defined-contribution private pension

plans. Firms – such as life insurance companies, mutual funds and banks – that sell savings

products had a natural incentive to press for pension privatisation, since they could be the

main potential providers of retirement savings plans (Leimgruber 2008; 2009; 2012;

Kemmerling and Neugart 2009; Meyer and Bridgen 2012; Naczyk 2013). However, a pivotal

actor was stock exchanges. Comparative political economists have often seen stock exchanges

as a relatively passive object of distributional struggles between different interest groups and

political parties (Roe 2006; Pinto et al. 2010). But they are in fact political actors in their own

right. And they can be quite powerful, as they act as a hub for a city’s or a country’s whole

securities – and more generally financial services – industry (Wójcik 2009, 2011; see also

Cassis 2010; Callaghan and Lagneau-Ymonet 2012).

In a context of internationalisation of capital markets and of increased competition

between financial centres, stock exchanges have had strong incentives to lobby for the

expansion of private retirement savings. By ensuring regular inflows of capital and by

creating a stable demand for assets, pension funds’ presence reduces both issuers’ and

investors’ uncertainty as to whether the shares or bonds they sell will indeed find purchasers

or will be correctly priced, and thus considerably increases a stock exchange’s appeal to

issuers and investors. Stock exchanges have therefore considered – and presented – pension

funds as a necessary ingredient for establishing their cities’ credibility as a financial centre

and for ensuring either their survival or their transformation into a leading international

financial centre.

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Despite the loss of tax revenue associated with the introduction of fiscal incentives for

private retirement savings, politicians have seen considerable economic benefits in the

policies advocated by financial sector groups. Not only – as has been emphasised by students

of the politics of pension privatisation in middle-income countries – could pension

privatisation form a large pool of long-term capital that could both help stimulate business or

public-sector investment and help attract additional – often foreign – investors on a country’s

financial markets. But it also promised to help the domestic financial services industry to

strengthen its competitive position in a situation where, due to the internationalisation of

capital flows, both market actors and policy-makers expected the provision of financial

services to become increasingly concentrated in a few dominant international financial centres

(Engelen and Grote 2009). If a government managed to build such a centre in its own country,

it could be credited with generating a new source of economic and job growth, which had the

potential to offset the decline of traditionally dominant manufacturing industries and could

eventually bring in new tax revenue for the state.

In sum, whereas dominant political science analyses of contemporary pension reform in

affluent democracies have seen the development of private pensions as a secondary outcome

of welfare state retrenchment and have focused on the party-political and structural drivers of

the latter, we argue that the diffusion of pension privatisation in Europe should be understood

largely as a separate dimension of pension reform that has been driven by the growing

internationalisation of finance. As capital markets were opened up, stock exchanges and other

financial sector firms started calling on governments to develop private retirement savings,

and this on the grounds that it would give the domestic financial services industry a

competitive edge in the global competition for capital. Politicians – especially those in charge

with economic management – were in turn attracted by this policy, as they were under

pressure to create new sources of economic growth in times of deindustrialisation.

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Note that, while we emphasise financial industry lobbying and the positive reasons for

politicians to promote private pensions, we do not claim that their presence constitutes a

sufficient condition for pension privatisation. Indeed, as governments’ efforts to develop

private retirement savings have often met with strong opposition from other social groups

such as trade unions (E.g. Bonoli 2000; Bonoli and Palier 2000; Häusermann 2010) or even

employers’ associations (Naczyk 2013), financiers and politicians have typically had to

engineer broader coalitions to make reform happen. Counter-mobilisation by other actors

therefore helps explain why the timing and the extent of pension privatisation have differed

from country to country, but, for the sake of parsimony, we treat it as exogenous to this

paper’s theoretical model. What we are interested here is to explain the series of political

decisions (mainly fiscal measures) aimed at favouring the development of private pensions.

Testing our Theory: Methodology and Case Selection

We will assess our argument with comparative process-tracing of contemporary pension

reform in Britain, France and Germany. Process-tracing is increasingly considered as the

method of choice for establishing whether a hypothesised causal mechanism – i.e. a statement

about the intermediate steps linking an explanatory variable and the outcome of interest – has

indeed been operating as expected by a theory (George and Bennett 2005; Hall 2008;

Trampusch and Palier 2014). The actor-centred explanation of pension privatisation we have

formulated in the preceding section links the main independent variable (financial industry

lobbying) with the dependent variable (legislation aimed at promoting the expansion of

defined-contribution retirement savings) via a causal mechanism at whose heart lies the

argumentation used by financiers to persuade politicians to promote pension privatisation. But

this argumentation – i.e. the idea that private pension funds create a new source of long-term

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capital that generates new investments, helps attract additional investors on a country’s stock

exchange and improves the competitiveness of their country’s financial centre – can be

expected to be really influential only in a context4 of expansion and internationalisation of

capital markets.

As a result, in tracing the reform process in each country case, we reveal empirical

‘fingerprints’ on the three main components of our hypothesised causal mechanism. First, we

provide background information on capital market liberalisation in each country so as to

establish that the context is similar across all of them. Second, we trace financial industry

lobbying and report the argumentation used by financial actors. Finally, we follow politicians’

activities and identify signs of congruence between their own justifications for reform and

those used by financiers. Our empirical evidence is based on anonymous interviews

conducted with policy-makers as well as on a systematic analysis of policy papers and of

electronic newspaper archives. We generally favour citing public statements made by

financiers and politicians at the time of the events as they often constitute more precise and

more reliable quotes than those obtained a few decades after the facts.

In order to demonstrate the cross-national relevance of our argument, we carry out these

within-case analyses for Britain, France and Germany. These three countries are selected

because they have displayed significant variation both on institutional factors that could have

strongly constrained their reform trajectories and on the party-political and structural ones that

could have on the contrary triggered institutional change. We thus adopt a most dissimilar

systems design for our case selection. First, the three countries had relatively different pre-

existing pension systems before recent reforms (Ebbinghaus 2011). Britain already had an

elaborate system of private employer-provided pension plans, but these were of the defined-

benefit – and not of the defined-contribution – type. By contrast, the German and French

4 For a theoretical discussion about the interaction between causal mechanisms and the context in which they operate, see Falleti and Lynch 2009.

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pension systems predominantly relied on generous public pay-as-you-go schemes, even

though significant differences existed between the two countries. Both the German and

French systems left some space for occupational pension provision, but French occupational

plans were also entirely financed on a pay-as-you-go basis (Palier, 2014).

Second, their post-war political economies – and in particular their financial systems –

were governed by very different types of institutional arrangements (Zysman 1983; Hall and

Soskice 2001; Schmidt 2002; Hall 2010). In Britain’s liberal market economy, large firms

traditionally financed much of their activities through the well-developed London Stock

Exchange. On the contrary, the German coordinated market economy had a primarily credit-

based system of corporate finance. In France’s more statist economy, firms’ financing needs

were also met mostly through bank loans although these were often selectively allocated by

the powerful French Treasury.

Despite these initial institutional differences – that could have inhibited the three

countries’ policy-makers from introducing new arrangements in their pension and financial

systems or that at least should have led to different paths of change –, all three countries

decided to promote the expansion of fully-funded defined-contribution pensions between the

1980s and the 2000s. In so doing, they have followed a general European trend (see Table 1).

But, significantly, they embarked on this similar trajectory even though they also exhibited

cross-national and temporal variation in government partisanship and demographic pressures,

two factors that have been deemed key by the new politics literature in explaining the

contemporary push towards pension reform.

TABLE 1 ABOUT HERE

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Before turning to the detailed process tracing of each case, we show that these two

alternative explanations (role of partisan politics and demography) cannot account for our

cases.

Conservative parties’ ideological assault on the welfare state has been considered as one

important driver of welfare state retrenchment and indirectly of the development of private

pension funds (Pierson 1994). Yet, when they have been in power, left-wing parties in all four

countries have enacted laws that have furthered the development of private retirement

savings. Thus, in Britain, after the Conservative Thatcher government made it possible in

1986 for workers to opt out either of their defined-benefit occupational schemes or of the

‘state earnings-related pension scheme’ (SERPS) and to join defined-contribution ‘personal

pension’ plans, Tony Blair’s Labour government decided to continue the expansion of such

plans by introducing defined-contribution ‘stakeholder pensions’ in 2001 and by enacting in

2008 a system of ‘automatic enrolment’ of workers in employer-sponsored private pension

schemes. Similarly, in France, although in 1989 a left-wing government scrapped tax

deductions for individual retirement savings accounts introduced two years earlier by the

right-wing Chirac government, Lionel Jospin’s left-wing coalition government accepted in

2001 to promote the expansion of defined-contribution ‘salary savings plans’. In Germany,

three years after Helmut Kohl’s right-of-centre government created a first set of tax incentives

for individual retirement accounts, the left-wing Schroeder government introduced a much

broader set of tax deductions and state subsidies for approved defined-contribution plans in

2001.

The ‘new politics’ literature has also suggested that the ideological divide between

right-wing and left-wing parties has narrowed because of structural pressures – in particular

population ageing – and of the climate of permanent austerity they have contributed to create

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(Pierson 1998). The ‘old-age dependency ratio’ - i.e. the ratio between older people and the

working-age population – has indeed been increasing in Britain, France and Germany since

the 1980s. But there have also been significant differences between the three countries with

that regard (see appendix 1), which make some institutional developments in pensions seem

puzzling. For example, although demographic projections showed already in the 1980s that

Britain would be much less affected by population ageing than its West European

counterparts, Britain has led the way in promoting private defined-contribution pensions. By

contrast, Germany - which has been one of the fastest ageing countries in Western Europe -

introduced its first tax incentives for such schemes much later than Britain and France.

In the following section, we will show that these differences in the timing of pension

reform as well as the acceptance both by right-wing and left-wing parties fiscally to promote

private retirement savings have had much to do with a process of diffusion of pension

privatisation. Indeed, in a context of internationalisation of capital markets, financiers called

on politicians to expand private pension funds so as to help them improve the competitiveness

of their countries’ financial capitals as one of Europe’s financial centres. Policy-makers often

accepted this argument.

Tracing the Influence of Financial Industry Lobbying on the Rise of Defined-

Contribution Pensions in UK, France and Germany.

In order to demonstrate the presence of our hypothesised causal factor and mechanism in the

three different cases we are analysing, our case studies will be following the same pattern.

First, we analyse the context of capital market liberalisation so as to establish that this is the

similar element to be identified in otherwise quite different systems. Second, we trace

financial industry lobbying and report the argumentation used by financial actors. Finally, we

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follow politicians’ activities and show consistency between their own justifications for reform

and those used by financiers.

Britain

Context: When the United States decided to remove its capital controls programme and

to liberalise its financial markets in the mid-1970s, the first major foreign country to respond

was Britain. With the growth of the Eurodollar and Eurobond markets in the 1950s and 1960s,

the City of London had managed to re-establish itself as one of the world’s pre-eminent

international financial centres (Helleiner 1994; Burn 1999). However, US authorities’

decision considerably increased the attractiveness of Wall Street in international financial

transactions. In order to avoid losing business to New York, British financial institutions

pressed politicians to lift all exchange controls, with the chairman of the London Stock

Exchange (LSE) – Nicholas Goodison (1977) – arguing that this was ‘the obvious chance to

rebuild our international reputation and create even greater confidence overseas’. Margaret

Thatcher’s government made a move in this direction when it came to power in 1979. In

1983, it also made a deal with the LSE to liberalise and modernise financial markets,

including by abolishing fixed minimum commissions on securities transactions (Laurence

1996; Vogel 1996: 93-108). The agreed changes came into effect in October 1986 through the

so-called ‘Big Bang’ and, as they were accompanied by the privatisation and the listing of a

number of large state-owned enterprises, they contributed significantly to raise the profile of

London as an international financial centre.

Financial industry lobbying: In parallel with the liberalisation of Britain’s financial

markets, the LSE started campaigning for regulatory changes in the country’s pension system.

Although the United Kingdom had a well-established network of occupational pension plans

that invested their monies in the domestic capital markets, the LSE highlighted from the mid-

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1970s the need to introduce tax incentives for individual retirement savings and for share

buying by small investors (Wilson Committee 1978: 233; Financial Times 1982). Since the

Second World War, the leading US and UK financial markets had both gradually become

dominated by institutional – instead of individual – investors (Drucker 1976; Plender 1982).

But stock exchanges increasingly saw this situation as unfavourable. It could not only affect

capital markets’ liquidity, but also drive out investment in small- and medium-sized

companies, since institutional investors typically preferred holding shares in large ‘blue chip’

companies. The LSE’s chairman – Nicholas Goodison – wrote that ‘if more people were

encouraged to take a direct stake in British industry the small, growing company would find

finance easier and cheaper to obtain’ (LSE 1978: 5).

Meanwhile, the deregulation of brokerage commissions was expected to drive small

investors even further away, as they would have to pay higher charges than wholesale

institutional investors. Since the New York Stock Exchange had managed to receive a new

influx of retail investors after Congress introduced tax-deductible Individual Retirement

Accounts (IRAs) in 1974, the LSE felt under pressure to introduce similar institutional

arrangements in order to be able to retain an important role for small investors and remain

competitive5. Since a French government led by right-wing politician Raymond Barre had

also introduced tax incentives for small investors (the so-called Loi Monory plans), Nicholas

Goodison wrote that he would ‘very much welcome a British Government taking a leaf out of

the French book’ (LSE 1979: 4).

The issue of the institutional design of private pensions became even more pressing for

the Stock Exchange after the lifting of exchange controls in 1979. As the Trade Unions

Congress (TUC) and the Labour Party opposed the free movement of capital, they started

suggesting that occupational pension funds and insurance companies should be forced to

5 Author interview with former chairman of the London Stock Exchange, London, August 1st 2012.

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invest a significant part of their assets in a National Investment Bank in order to support

British manufacturing industries (TUC 1979; see also LSE 1986). Shifting the management of

retirement savings from financial institutions to individuals could thus help avoid a situation

in which private pensions would fall under the control of unions and stop regularly supplying

the stock exchange with new funds.

Politicians’ activities: The LSE’s proposals started influencing the political agenda,

when just before the 1983 general election the Centre for Policy Studies (CPS 1983: 1-2) – a

free-market think tank with close ties both to the Thatcher government and to the business and

financial communities, including the LSE6 – suggested that workers should be allowed to opt

out of their defined-benefit occupational pension schemes – which gave individuals only

‘ownership at second hand’ – and should ‘be given the chance to run their own personalised

pensions’ through defined-contribution ‘personal and portable’ plans. The CPS (1983:1)

hoped such plans would give ‘a real sense of involvement in the industrial success of this

Country’. Tory elites were also clearly concerned about the impact of trade unions’ ideas on

the competitiveness of the British economy and capital markets. During an electoral speech,

the Prime Minister said that the TUC and Labour were planning to ‘re-nationalise everything

that has been de-nationalised by this Government. And how will they pay for this vast state

grab? Well, they’ve got their eyes on your pension scheme and your life assurance’ (Thatcher

1983). Later, the Trade and Industry Secretary, Leon Brittan, would declare that ‘Labour’s

proposals for securing the repatriation of capital invested overseas by pension funds and other

institutions would destroy the City of London as a leading financial centre’ (Financial Times

1985).

After it won the 1983 general election, the Thatcher government set up a working group

to investigate the possibility of introducing personal pensions. Yet it rapidly emerged that it

6 Ibid.

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was not necessarily intent on following the CPS’s plan to transfer the management of

retirement savings from institutional to individual investors, as the working group on personal

pensions was dominated by private insurance companies (Financial Times 1984). Through the

Social Security Act 1986, the government eventually introduced strong financial incentives

for workers to save in ‘personal pensions’ managed by financial institutions – such as

insurance companies or banks – while at the same time opting out of their occupational plans

or of the ‘state earnings-related pension scheme’ (SERPS)7. But, the same year, the Treasury

also introduced significant tax incentives for ‘personal equity plans’, which were more in line

with the institutional changes demanded by the London Stock Exchange (see also LSE 1985;

Goodison 1986).

The City’s influence on Britain’s pension policy-making was further demonstrated by

the shift in the Labour Party’s attitude towards pension privatisation in the 1990s. Indeed,

while in 1990 Labour was still openly hostile to personal pensions (The Guardian 1990), by

the mid-1990s it accepted to promote the expansion of private defined-contribution pensions

and to reduce the role of SERPS. When claims arose about the ‘mis-selling’ of personal

pensions to individuals who would have been better off staying in their occupational plan or

in SERPS (See Jacobs and Teles 2007), the Labour Party’s City spokesman wrote that

‘dramatic disruption [in regulation] would not serve any useful purpose’, arguing among other

things that ‘the financial sector is crucial to Britain’ as ‘it contributes nearly 18 per cent of

GDP and employs about 2.5 million people. Britain is in many respects the world leader in the

provision of financial services’ (Darling 1995). To remedy the deficiencies of personal

pensions, Tony Blair’s government promoted from 2001 the expansion of low-cost defined-

contribution ‘stakeholder pensions’ after seeking the cooperation of insurance companies for

7 Although ‘new politics’ analyses of British pension reform have seen the introduction of personal pensions as initially motivated by a will to curb the welfare state (Pierson 1994), it was only in the winter of 1984/1985 that Conservatives started linking the two issues and suggested that employees should be able to opt out not only of occupational pensions but also of SERPS in order to save in personal pension plans (cf. Fowler 1991: 211-216).

21

their implementation (The Sunday Times 1996)8. Furthermore, as throughout the 2000s the

Association of British Insurers (ABI) and the National Association of Pension Funds pushed

for government measures to help reduce what the ABI called Britain’s retirement ‘savings

gap’ (The Times 2002; Meyer and Bridgen 2012), New Labour introduced in 2008 a form of

‘soft compulsion’ through the ‘automatic enrolment’ of workers into employer-sponsored

funded pension plans.

France

Context: As in Britain, pension privatisation was put on France’s political agenda in the

context of significant changes in that country’s financial system. After the Second World

War, French technocratic elites had put in place a system of state-controlled banking in order

to be able to spur investment in favoured industries (Zysman 1983; Hall 1986). However, in

the 1970s, this dirigiste system was increasingly criticised for propping up ‘lame ducks’ in

declining industries and for stifling the development of small- and medium-sized enterprises

(Berger 1981). In order to loosen the ties between government and industry, liberal politicians

such as Valéry Giscard d’Estaing and Raymond Barre attempted gradually to increase the role

of the stock exchange in the financing of large companies (Zysman 1981: 260-264). But this

promotion of capital markets was also motivated by on-going talks from the late 1960s about

the liberalisation of capital movements within the European Economic Community (EEC –

see Abdelal 2007: Chapter 4) as well as by French politicians’ worries over how the EEC’s

enlargement to Britain would affect continental countries’ financial systems and centres.

Finance Minister Giscard d’Estaing openly spoke about his ambition to turn Paris into the

continent’s leading financial centre or even to ‘put it on a par with the City of London’ (Le

8 Author interview with Mark Boléat, former director-general of the Association of British Insurers, London, June 8th 2012.

22

Monde 1972) and tried to woo foreign institutional investors to the Paris stock exchange

(Financial Times 1972). Although a Socialist government unsuccessfully tried to reassert state

control over the financial system between 1981 and 1983 (Machin and Wright 1984), the

liberalisation process continued unabated from 1983 and was given a decisive push in 1986-

1987 when the right-wing Finance Minister, Edouard Balladur, launched a ‘little Big Bang’

(Cerny 1989), which, as in London, included the deregulation of brokerage commissions and

was accompanied by the loosening of capital controls and by an ambitious programme of

privatisations.

Financial Industry Lobbying: The liberalisation of the French financial system

coincided with calls from the financial sector to develop funded pensions in France’s largely

pay-as-you-go pension system. While the insurance industry often used demographic ageing

as an argument to justify the need to introduce tax incentives for private retirement savings9,

both insurers and bankers also emphasised the economic benefits that pension privatisation

would bring. For example, in a Le Monde op-ed, two senior bankers deplored that ‘our pay-

as-you-go pension system does not create those abundant long-term savings that our

companies would need in order to increase their [equity] capital’ (Schlumberger and Gilbert

1978). Similarly, in a study financed by the Geneva Association – an organisation that was

founded in 1973 by senior continental and British insurers and has ever since acted as the

insurance industry’s global think tank (Leimgruber 2009, 2012) – two junior French

economists – Denis Kessler and Dominique Strauss-Kahn (1982: 11) – made a case for

developing private pension funds and argued that an ‘obvious advantage’ of pension

privatisation was that it would ‘create an inflow of long-term savings that is easy to direct’.

The essay received considerable attention when it was published as a book (e.g. Le Monde

1982). 9 For instance, in 1979, France’s largest insurance company – the UAP – launched an aggressive advertising campaign that targeted pay-as-you-go schemes and used the following slogan: ‘Babies born in 1949, don’t count too much on babies born in 1979 to pay for your pensions’.

23

Although a first set of tax deductions for ‘retirement savings plans’ (plans d’épargne

pour la retraite – PERs) was introduced by a right-wing government in 1987, it was phased

out almost immediately – in 1989 – by a left-wing government. Both trade unions and parts of

organised business mobilised against pension privatisation because they considered it as a

direct threat to private occupational pay-as-you-go schemes they managed together (Naczyk

2013). In this context, the financial services industry had to continue pressing hard for the

introduction of legislation on pension funds for another decade10. In order to build greater

support for reform, the French Federation of Insurance Companies proposed to create

‘French-style pension funds’ (fonds de pension à la française) that could be administered

jointly by trade unions and employers (FFSA 1991). Economist Denis Kessler – who now

headed the FFSA insurance lobby – highlighted that funded pensions constituted the ‘sinews

of war in modern capitalism’ (Le Monde 1994). An important role was also played by the

French Association of Investment Firms (AFG – see Bollon and Cossic 1997) and by the

Paris Europlace lobby, which was created by the Paris stock exchange and other parts of the

French business and financial communities – including France’s central bank, the Banque de

France – in the wake of the signing of the 1992 Maastricht Treaty in order to help promote

Paris as the leading financial centre of the European Economic and Monetary Union (EMU).

The head of the Paris Bourse, Jean-François Théodore, insisted that private retirement savings

were ‘the big booster’ (The Observer 1991) and would provide the stock exchange with ‘an

extra engine, an extra turbo, which will give it even more strength’ (Reuters 1994).

Politicians’ activities: Arguments concerning the economic benefits of pension

privatisation struck a chord on both sides of the political spectrum. One of the first powerful

spokesmen of private pension funds was Raymond Barre – France’s right-wing Prime

Minister from 1976 until 1981, but also first president of insurers’ global think tank, the

10 E.g. author interview with former head of the FFSA (French Federation of Insurance Companies).

24

Geneva Association, between 1973 and 1976. At the same time as he tried to promote the

expansion of capital markets, Barre argued that ‘the superstructure of the system of social

benefits’ had to be made ‘compatible with the country’s economic and demographic

infrastructure’ (Le Monde 1978). On the left, the socialist Minister of Social Affairs in the

early 1980s, Pierre Bérégovoy, expressed his interest in the introduction of fiscal incentives

for private retirement savings saying that ‘we will be able to distribute more only if we create

the conditions for new economic growth… We must invest in progress and therefore save’

(Le Monde 1983). The statement was made only two years after Socialist President François

Mitterand fulfilled his electoral promise to decrease the minimum retirement age from 65 to

60 years – and ten years before the first significant attempt at pension retrenchment (cf.

Bonoli 2000). In 1985, having become Finance Minister, Bérégovoy gave his nod to a bill

submitted by a Socialist MP – although ultimately rejected by the left-wing parliamentary

majority – to create such tax incentives (Le Monde 1985).

As mentioned, the first tax deductions for ‘retirement savings plans’ (plans d’épargne

pour la retraite – PERs) were introduced as part of a ‘law on savings’ passed in June 1987 –

that is roughly at the same time as the Paris Bourse was undergoing its ‘little Big Bang’. The

PERs were voluntary defined-contribution plans explicitly modelled on American ‘Individual

Retirement Accounts’ (IRAs)11, although both banks and life insurance companies were also

allowed to manage them. When he presented the rationale for introducing the bill, Finance

Minister Edouard Balladur declared that: ‘Contrary to many other countries where funded

pensions play a very important role in household savings and in supplying financial markets,

this type of savings does practically not exist in France’ (Le Monde 1986). After the PERs

were repealed in 1989 and as the financial services industry continued lobbying for pension

privatisation, the issue was typically put back on the political agenda by Ministers of Finance.

11 See also 1982 and 1985 reports on IRAs written by the Embassy of France in the US – featured in CNC (1986 : 136-150).

25

For example, right-wing Finance Minister Edmond Alphandéry announced his intention to

introduce legislation on private pension funds as he sought ‘to shift short-term savings to the

medium or long term’ (Financial Times 1994). Similarly, only a few weeks after socialist

prime ministerial candidate Lionel Jospin pledged during the 1997 election campaign to

repeal a law on retirement savings that had been recently introduced, the new socialist

Finance Minister, Dominique Strauss-Kahn, said that France did not want to ‘find itself

without an instrument of this type’ (Financial Times 1997b) and launched a series of

consultations on the issue. Significantly, the statement was made at the annual conference of

the Paris Europlace lobby. More stable legislation on private retirement savings was

eventually introduced, first with the passage of a ‘law on salary savings’ by Lionel Jospin’s

left-wing government in 2001 and later with the enactment of the 2003 Fillon pension reform

by a right-wing majority (Palier 2007; Naczyk and Palier 2011; Naczyk 2013).

Germany

Context: For a long time, Germany lagged behind other European countries in

encouraging the development of private pension funds and more generally that of financial

markets. The post-war German political economy was based on a strong relationship between

banking and industry, as large firms financed themselves primarily through loans provided by

‘universal’ banks, which could in turn supervise their corporate clients through the equity

stakes they held in them (Zysman 1983; Hall and Soskice 2001). Capital markets played only

a marginal role in the financing of German businesses. Nevertheless, the situation started

changing in the mid-1980s and this for two reasons. First, due to a growing tendency for large

firms to self-finance and to be less dependent on the banking system, big commercial banks –

including Germany’s largest one, the Deutsche Bank – started seeking new business

26

opportunities and shifting their focus on activities related to capital markets such as

underwriting and trading (Deeg 2005: 179; Trampusch 2013). Second, the EEC’s push for the

creation of the Single Market as well as Britain’s and France’s efforts to promote London and

Paris respectively as Europe’s leading financial centres heralded a new era for European

financial services. These two types of changes led parts of the German financial services

industry to be increasingly interested in the promotion of domestic capital markets and

especially in the merger of the hitherto decentralised system of regional stock exchanges into

a single German-wide entity to be based in Frankfurt (Moran 1994: 171-175; Vogel 1996:

250-253; Lütz 1998). The EEC’s decision in 1992 to install Frankfurt as the location for the

nascent European central bank, the European Monetary Institute, gave an even greater

impetus to the Finanzplatz Deutschland (‘Financial Centre Germany’) campaign, which was

supported by German federal authorities through the passage of four ‘financial market

promotion laws’ between 1990 and 2002 (Lütz 2005: 150).

Financial industry lobbying: The German financial community’s efforts to promote

Frankfurt as an international financial centre led them to pay extra attention to the institutional

design of the domestic pension system. Since Germany’s predominantly pay-as-you-go

system had left some space for the development of occupational pension plans (Ebbinghaus et

al. 2011), financiers initially concentrated on changing the regulations that governed these

existing plans. Unlike in Britain or in the US, occupational pension funds – but also the

German insurance industry – were traditionally not equity-minded. Consequently, the

Federation of German Stock Exchanges – created to pave the way for the unification of the

regional stock exchanges12 – pressed at the end of the 1980s for an easing of government

regulations that limited the amount of assets that these institutional investors could invest in

shares (Reuters 1989). According to the Federation’s head, Rüdiger von Rosen, such limits

12 German stock exchanges were eventually unified into the Frankfurt-based Deutsche Boerse AG in 1993.

27

were ‘a curious state of affairs for a country with one of the world’s most prosperous

economies and which is trying hard to make its financial markets more attractive and

efficient. The mobilisation of domestic institutions would contribute to a further strengthening

of the stock market’ (Financial Times 1987).

However, after the choice of Frankfurt as the location of the future European central

bank considerably increased the city’s chances of becoming the continent’s leading financial

centre, the German financial services industry launched a more determined campaign for the

development of defined-contribution retirement savings accounts. Rolf Breuer, the chairman

of the newly created Deutsche Börse AG and head of Deutsche Bank Capital Markets, argued

that ‘the Economic and Monetary Union will lead to the disappearance of the worst

performing stock exchanges. (…) The future belongs to those who will have the most efficient

pensions market’ (Reuters 1996). The German Insurance Association (GDV) called on the

government to ‘clarify the role of private insurance as a security partner and pillar of pension

provision’ (Süddeutsche Zeitung 1995) and contended that ‘the same pension can be financed

with less money, and our economy can use the expanding capital to invest in jobs’ (Business

Insurance 1998). Other interest groups lobbying for pension privatisation included the

Association of German Investment Firms (BVI – see also Wehlau 2009; Hockerts 2011: 307-

310), the Deutsches Aktieninstitut (DAI) – a think tank headed from the mid-1990s by

Rüdiger von Rosen – as well as Finanzplatz e.V. – an association created by Frankfurt-based

financiers in 1996 and directly inspired by the rival Paris Europlace initiative.

Politicians’ activities: German policy-makers – in particular the Federal Ministry of

Finance, some of whose officials were associate board members of the Finanzplatz

association (Boersen-Zeitung 1999) – were increasingly attracted by the potential economic

benefits brought by pension privatisation. In response to the demands formulated by the

Federation of German Stock Exchanges in the late 1980s, the Ministry of Finance decided in

28

1990 to allow domestic pension funds and insurance companies to invest up to 30 per cent of

their funds on the equity markets. In 1998, the third ‘financial market promotion law’ created

tax incentives for a new type of retirement accounts for private investors. When the law was

discussed in Parliament, the Christian-Democratic Minister of Finance, Theo Waigel, said:

‘Globalisation is continuing and the euro is coming. In the light of these developments we

must strengthen our financial markets further’ (Financial News 1998).

However, the most significant push for pension privatisation was given by the Riester

pension reform introduced by Gerhard Schröder’s left-wing coalition government in 2001

(Schulze and Jochem 2006; Jacobs 2011). While still in opposition, Gerhard Schröder (1997)

wrote in an op-ed published in the Financial Times that: ‘As far as retirement benefits are

concerned, employees must continue to benefit from a basic state pension, but they must also

rely more on their own resources by investing in the capital stock of the economy.’ Once the

left came to power in 1998, the Social Democratic Minister of Social Affairs, Walter Riester,

decided to significantly cut the level of public pensions and simultaneously to offer generous

tax-financed allowances to those workers who would voluntarily save up to 4 per cent of their

gross wages in defined-contribution pension accounts. Insurance companies successfully

pressed for an increase of the tax subsidy’s maximum amount from 250 to 500 German marks

per person (Stuttgarter Zeitung 2000; Schulze and Jochem 2006). Despite putting together an

austerity package of 30 billion marks in 1999, Finance Minister Hans Eichel – who had

previously been Minister-President of the German state of Hesse13, where Frankfurt is located

– agreed to a tax expenditure of up to 19 billion marks for private pensions, declaring that

‘anything else would be unaffordable’ (Die Tageszeitung 2000). After the Riester pensions

13 When in office in Hesse, Hans Eichel announced his administration would sponsor a bill in the Bundesrat, Germany’s second chamber of parliament, to make the introduction of private retirement savings possible (Financial Times 1997a; Süddeutsche Zeitung 1997b). The announcement was made only two months after Eichel had met with Rolf Breuer (Deutsche Bank and Deutsche Börse) to discuss the future of the Frankfurt financial centre and had talked about the issue of private pensions funds (Süddeutsche Zeitung 1997a).

29

were introduced, the financial services industry continued lobbying for regulatory changes

that would help increase their take-up (Berner 2006).

Conclusion

Beginning in the late 1970s, both financial services organisations and policy-makers

started promoting more actively the development of private pensions in different European

countries. This dramatic change was largely triggered by the growing competition between

European financial centres that resulted from the liberalisation of financial markets and

capital movements. Pension funds were widely seen as a shot in the arm to those stock

exchanges and financial centres that aspired to play a leading international role in the

provision of financial services and wanted to attract increasingly footloose financial capital.

With its already very developed capital markets and London’s aspirations to compete with

New York for the position of the world’s dominant financial centre, Britain was the first

European country – together with another hub of international finance, Switzerland – to

redesign its pension system. Other countries then took inspiration from the British reform and

from institutional arrangements existing in the United States. When London’s ‘Big Bang’

directly threatened Paris’s ambition of becoming the continent’s leading financial centre, the

French government reformed its capital markets in a similar way and tried to stimulate their

growth with individual retirement savings accounts. When the Frankfurt financial centre

became a credible competitor for Paris in the 1990s, German authorities followed suit.

Our approach and findings make significant contributions to political science research

both on welfare state reform and on institutional change in contemporary capitalism. The

paper has underlined a causal connection between pension reform and the liberalisation of

30

financial markets that had been overlooked by students of welfare state retrenchment in

affluent democracies. Although some political scientists have pointed out the lobbying

activities of the pension fund industry in some Latin American countries (Kay 1999; Madrid

2003; Kemmerling and Neugart 2009), it would be worthwhile systematically to reassess the

role played by financiers in the privatisation of pensions in Latin America, but also in other

regions of the world such as, Central and Eastern Europe or different parts of Asia. More

generally, there is still much research to be done on the role of the financial industry in

shaping social policy, including in areas such as healthcare, long-term care or sickness

insurance.

The second important contribution our paper makes is to the emerging literature on the

‘financialisation’ of capitalism. Echoing the words of former US Treasury Secretary

Lawrence H. Summers who claimed that ‘financial markets don’t just oil the wheels of

economic growth. They are the wheels’ (US Treasury 1997), some comparative political

economists have argued that the financial services industry has increasingly striven to become

the lead sector in Western economies and has gradually imposed its ways of doing business

on other industries (Boyer 2000; Krippner 2005; 2011; Dore 2008; Davis 2009; Engelen and

Konings 2010 ; Hacker and Pierson 2010; van der Zwan 2014). This paper has shown how

financial firms have clearly seen pension privatisation as an essential ingredient for their

growth as an industry. By uncovering the arguments used by stock exchanges or commercial

insurers in pressing for pension privatisation, we also contribute to highlight how the

possibility for a country to become a leading international financial centre – and the attraction

of this prospect both to financiers and politicians – has been one of the key mechanisms

through which the financial sector has been able to become both politically and economically

more powerful.

31

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Table 1 – First piece of legislation on funded defined-contribution plans in Western Europe Year Voluntary (Quasi)-Mandatory 1971 1972 CH* 1973 1974 (US) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 CH** 1986 BE, UK 1987 DK, ES, FR 1988 1989 PT 1990 1991 1992 NO 1993 SE, IT 1994 SE 1995 1996 1997 1998 1999 2000 2001 DE 2002 IE 2003 AT 2004 2005 2006 2007 2008 UK 2009 FI 2010 *constitutional change **legislation implementing constitutional change Sources: Immergut et al. (2006); Ebbinghaus (2011) and own research

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Appendix 1 – Demographic pressures

Old-age dependency ratio – i.e. ratio of older persons (65 years or over) to the working-age population (15-64 years)

1985 1990 1995 2000a) Effective (projected

for 2020) effective (projected

for 2020) effective (projected

for 2020) effective (projected

for 2020) Europeb) 18.6 (26.9) 20.0 (28.7) 20.6 (27.8) 22 (29) France 18.6 (28.0) 20.9 (30.5) 23.2 (33.0) 24 (32) Germanyc) 20.6 (33.2) 22.1 (34.6) 22.2 (30.0) 24 (34) Great Britain 23.1 (27.7) 23.5 (28.1) 24.3 (30.1) 24 (28)

Life expectancy at birth for both sexes

1980-1985 1985-1990 1990-1995 1995-2000 Europeb) 73.1 74.4 72.7 73.2 France 74.5 75.1 78.0 78.1 Germanyc) 73.7 75.9 76.0 77.3 Great Britain 73.7 75.3 76.3 77.2

Total fertility rates

1980-1985 1985-1990 1990-1995 1995-2000 Europeb) 1.88 1.72 1.57 1.41 France 1.92 1.82 1.70 1.73 Germanyc) 1.40 1.40 1.30 1.33 Great Britain 1.90 1.81 1.78 1.70 Sources: UN 1986 for 1980-1985 data; UN 1991 for 1985-1990 data; UN 1998 for 1990-1995 data; UN 2001 for 1995-2000 data Note: a) data for effective and projected old-age dependency ratios in 2000 gathered from UN 2003 due to error in UN 2001 b) Europe includes countries of the former Communist Bloc c) Before German reunification in 1990, Germany refers to the Federal Republic of Germany.