In this paper we argue that there has been two distinctive waves of pension financialization in the UK. Wave 1 occurred before the 2008 financial crisis, and Wave 2 has been on-going since the 2008 financial crisis. We argue that both waves are still underway, and that the impact of the particular type of pension financialization experienced in each wave is neither entirely static in character, nor over. We argue that pension financialization in wave 1 (characterised by pension scheme closure/downgrading) laid the much needed groundwork for further pension financialization in wave 2 (characterised by more pervasive forms of value appropriation). The 2008 crisis plays an important role in the distinction between waves. In short, the impact of the 2008 finance crisis resulted in losses for both state and capital, and thus prompted a change in strategy of pension financialization in wave 2.
Wave 1 occurred between 2002 and2008, when we witnessed the acceleration of final salary pension scheme closures, and the replacement of these with less favourable pension schemes, such as career average or defined benefit (Grady, 2013). We identify this as an era of pension financialization, as the arguments used to underpin the scheme reforms were rooted in neoliberal ideology, and financialization of the labour process (Grady, 2013). Obviously pension scheme reform existed prior to 2002, and has continued since 2008, but we argue that this period represented the height of pension scheme reform, and more importantly, it was during this period that widespread acceptance of the neoliberal argument for pension reform became embedded in political dialogue. In short, that social democratic pension settlements of the Keynesian period were deemed unsustainable within a period of financialization inspired by neoliberalist orthodoxy. Thus the political rhetoric which advocated a financialized pension reform was manufactured during this period as legitimate, accurate, and true. Our argument illustrates that organisations financially benefitted from the pension financialization that occurred during wave 1. They did so in numerous ways; reduced employer contributions, scheme closure, pension contributions holidays, and removal of financial responsibility to underwrite a scheme; these were the main vehicles that delivered financial dividends. Wave 1, therefore, represented multiple financial gains for capital and the state, however, as a result of 2008 crisis, both state and capital incurred significant losses. Thus the gains that had been achieved from wave 1, were somewhat diminished by crisis losses.
A significant characteristic of post-crisis accumulation is a determination by the state and capital to ‘take back’, make-up, or re-capitalize the losses that they sustained during the crisis. As such, the strategy for pension financialization differs quite significantly in wave 2. As noted above, wave 1 continues, and this is evident in UK universities at the moment with debates about the future viability of USS, but in wave 2 pension financialization does not just focus on pension scheme reform and closure, but also appropriation of pension value in other ways. This is achieved via particular forms of financialization of the labour process and exploitation of disconnected financialized regulatory mechanisms, which permit historical wage theft from pension schemes (Grady and Clark 2017).
Wave 1 therefore represented (and continues to represent) efforts by employers to reduce payments into pension schemes. Whereas, wave 2 represents the search for further savings, both from workers already in schemes (generally older workers), and savings from those placed in precarious employment (often, but not always, younger workers). With regards older workers, the savings take the form of recuperation of pension payments, via two interrelated activities by employers. The main activity of appropriation we see is the deployment of several strategies to seize back pension contributions previously paid – this is evident in the UK in both private, public, and post-takeover firms (Grady and Clark, 2017). These strategies include, amongst other things, direct appropriation from private sector schemes, transferring funds from scheme to shareholders, over calculating value of schemes (Clark, 2018; Grady and Clark, 2017). We argue this represents historic wage theft of the labour process, by essentially appropriating back value paid, often over several decades. A further activity of pension financialization and appropriation is associated with increased precarity of the labour process via the deregulation of labour market. This has a dual impact of driving down wages, whilst companies simultaneously appropriate value that used to pay more lucrative rates of wages for employees, and in form of higher pension contributions (Grady, 2017). Younger workers and increasing numbers of precarious workers are predominantly affected.
This research provides new theoretical critiques of financialization, and we illustrate our argument by examining cases of UK pension financialization, the appropriation (historic, current, and ongoing) of value this involves, and the manifest ways this impacts on the labour process.
References
Clark, I. (2018) ‘The Political Economy of Finance-Led Capitalism: Connecting Financialization, Private Equity and Employment Outcomes’ in Wright, M., Amess, K., Bacon, N., Siegel, D. (eds) The Routledge Companion to Management Buyouts – Routledge Companions in Business, Management and Accounting. London, Routledge, September 2018.
Grady, J., (2013) Trade Unions and the Pension Crisis: Defending Member Interests in a Neoliberal World, Employee Relations, 35(3): 294-308
Grady, J., (2017) The Role of State Regulation in Financializing the Employment Relationship: Activation Policies, Zero Hour Contracts and the Production of Low Pay, Employee Relations
Grady, J., & I. Clark, (2017) ‘Political Economy, Pensions and Precarity: The Appropriation of Pension Contributions under Finance-Led Capitalism’, conference paper presented to ILPC 2017, Sheffield.