27
setting up a new system from scratch, there would still be the obligation to meet the pension
payments for those who have contributed to the PAYGO system for most of their working
careers. Therefore, those in employment at the time of system change would, theoretically,
have to pay contributions for current and soon-to-be pensioners and make contributions of
some sort to the new system in order to start saving for their own future pension. Essen-
tially, this age cohort or generation would have to shoulder a prohibitively high burden,
which puts governments into a difficult situation. The biggest problem would be that em-
ployees could simply not afford to pay for two systems at the same time. In addition, em-
ployers would have to shoulder even higher non-wage labour costs and are unlikely to give
their consent. Both reasons would make it a futile task for governments to communicate the
message of a double burden to the electorate; that is why an abrupt change from one system
to the other is practically impossible to achieve. Even a more gradual change, so to speak,
phasing out the PAYGO component in a pension system and replacing it by other elements,
such as capital-funded private or company pensions, tends to be politically delicate. Techni-
cally speaking, path-dependency in this type of social policy programme relates to high
switching costs from a PAYGO scheme to another manner of funding.
A second important institutional characteristic seen to foster resilience is the social insur-
ance character of pension arrangements, where contributory entitlements constitute quasi-
property rights (Schludi 2002: 63). Siegel constructed an institutional index of reform elas-
ticity to assess the degrees of freedom for policy-makers in pursuing retrenchment policies.
The index reveals that pension systems with means-tested benefits have considerably less
barriers, both legal and political, to government interventions. On the other hand, earnings-
related social insurance-based pension systems, such as the Bismarckian and thus the Ger-
man one, enjoy a high degree of protection (Siegel 2002). Similarly, the resilience of Bis-
marckian pension arrangements also depends on the degree of system maturation. In this
line of argument, the more mature a pension system is, the higher the share of persons with
substantial benefit entitlements who are likely to oppose benefit cuts (Myles/Pierson 2001).
Accordingly, since German pension arrangements are certainly mature, legal and political
obstacles to reform can also be expected.
In addition to these strictly institutional sources of social policy resilience, pension ar-
rangements are ‘sticky’ because influential non-state actors defend them. This line of rea-
soning relates to the characteristic of corporatistic relations that is present throughout the
German welfare state (see Section 1.1). Accordingly, it is to be expected that established
societal actors in the area of pensions, particularly trade unions, but also self-governing
bodies with employer and trade union involvement such as the VDR (Verband Deutscher
Rentenversicherer), resist far-reaching restructuring efforts if they go against the interests of
29
pensioners.
29 Nullmeier and Rüb stress that self-governance in the pension sector is a central and inviolable policy
principle and embodies an institutional instrument of cooperation between employers’ associations and
trade unions, who act to represent pensioners (1993: 114).