Explaining the growth of funded pensions: a case study of the Netherlands

Explaining the growth of funded pension systems is a major project in political economy. Drawing on the financialization and growth models literatures, this is a case study of recent pension fund growth in the Netherlands. Newly digitized data show almost continuous net fund inflows since their post-war inauguration, while since 2006 per-worker contributions have risen by half and annual costs, mostly investor remunerations, rose to almost a third of annual benefits. The ageing-based rationalization of investments is questioned based on demographic and pension fund data. The drawbacks of pension investments in terms of investment costs, macroeconomic volatility, loss of effective demand, and financial fragility are examined. Using the lens of the political economy of finance-led macroeconomic growth models, an alternative explanation for pension fund growth is developed. Post-2000 continued pension fund expansion in the era of managed money was financially necessary to cover investors' remunerations, and was a conduit for the investment of strongly rising international inflows. The costs of the funded system were obscured by the academic discourse on pension funds in terms of neoclassical models, treating pensions as financial assets. Since academia and policy are part of the same epistemic community, this fed into a policy discourse centered on continuous worries and painful reforms, leaving no policy space for consideration of alternatives to funded pensions. Insights from this case study have wider applicability to economies with funded pension systems.