When do benevolent employers change their mind? Explaining the retrenchment of defined-benefit pensions in Britain

This paper explores the politics of welfare retrenchment, but differs from much of the current literature in this area by focusing not on the decisions of politicians but those of private sector employers. In countries with a large private welfare sector, employers are major social policy players with a significant influence on the generosity of welfare provision, but the rationale behind their actions is not well understood. To explore these issues, a case study is used of the recent fundamental change in UK occupational pension provision, involving a rapid shift from defined-benefit to defined-contribution pensions. The paper shows by means of a micro-simulation of the relative performance of defined-benefit, defined-contribution and state pensions that this shift represents a significant retrenchment. It suggests, using historical material, interview data and insights from behavioural economics, that existing explanations for this change, while valuable, have important gaps because they are based on too narrow a conceptualization of business motives. In this regard, the paper highlights the importance of herd behaviour