“Risk” and UK Pension Reform, by Patrick Ring

Social Policy and Administration, vol.37, no.1, February 2003, pp.65-81.

In this article Ring explores the meaning of ‘risk’ in the debate on the distribution of risks in pensions policy: the risk of the demographic time bomb; the risk of poverty; the risk to government finances; the risk of stock market fluctuations; and the risk to individuals of not understanding the complexity of pension provision. Risk is then understood in relation to the notion of security, and individuals’ need to reduce risk suggests to the author that expecting people to take on the greater risks of private pension provision requires the security of State or employer provision.

An interesting discussion of the relationship between ‘hazard’ and ‘risk’ explores three options: that the ‘real’ hazard of poverty in retirement leads to a risk of not having saved enough to avoid poverty; that hazard is ‘neutral’ and risk socially-constructed, e.g., by a government which regards not saving for retirement as socially deviant; and that both hazard and risk are socially-constructed – which makes sense as only a sense of risk can define something as a hazard.

Ring concludes that, as State and employers’ pension schemes crumble, and as private provision proves to be insecure, a debate deeper than the current one is required: a debate about the nature of retirement, the nature of work, and the meaning of ‘decent income’ – for only then can we decide together how the hazards are to be defined and thus what the risks are likely to be.

A fundamental problem discussed in the concluding section is that the abandonment of risk by employers and by the State has not been matched by the construction of strategies by individuals to enable them to absorb risks. Ring’s point that there is no such thing as security is well taken. He also suggests that the knowledge brought to the debate by employers and investors is as important as that brought by actuaries, and that it is the sources of risk which we should be discussing, not just who accepts it.

This article brings some important theoretical concepts to an important debate. What is now required is policy options which take into account both this discussion and also a few of the now obvious realities: e.g., that employers are no longer going to accept a share of the risk. This means that whatever the perceived or constructed hazard, the risks are going to be shared between the individual and the State, so that what is needed is social policy which shares the risk equitably, enabling the State to take on a defined level of risk, a strategy which will itself encourage individuals to take on a degree of risk within a context of an underlying State-sponsored security.