Our analysis implies that standard accounts portraying the EU as a regulatory polity with little discretion over pension policy issues are wrong. The constraining impact of EU treaties on national pension policy choices and the creation of a single European pension market demonstrate that the scope of EU regulations is much broader than traditional accounts on the EU have acknowledged. Far from being limited to apolitical areas of market creation and maintenance, the European Union crucially shapes workplace pension regulations, with highly controversial implications for national labor relations and capital flows. European legal constraints have greatly reduced the capacity of national governments to influence workplace pension regulations, notably in the areas of investment rules, waiting and vesting periods, treatment of foreign pension funds, and regulatory supervision. Market integration and the management of cross-border externalities may drive EU pension legislation, but the reshaping of national pension policy choices is the outcome.

The findings of our inquiry have been discussed at length in the book. We provided evidence that pension reforms in the member states are not just a consequence of domestic factors, such as demographic aging, but also the result of international factors, in particular the constraining effects of the Maastricht Treaty. Using an event history set-up, we systematically tested whether the timing of pension reforms in Western Europe ensued from the diffusion of policy ideas, domestic pressures, or common shocks.

Workplace pension schemes represent social, labor market, and economic goals. They provide social protection in old age and serve as staff retention device for firms' most valuable employees. They have also been used as a financial service instrument to complete the single market in the European Union (EU). While much has been written about the social function of workplace pensions, less attention has been devoted to the use of pensions as market-making device in the EU. Yet, studying the role of workplace pensions in the EU's internal market is intriguing because it highlights tensions between supranational regulations and domestic pension systems.

In the European Union, age-related spending represents a large share of public expenditure and is therefore an issue of common concern among the member states. Pensions from public pay-as-you-go (PAYG) schemes are the main source of income for older Europeans. In 2012, the EU as a whole spent more than 10 percent of gross domestic product (GDP) on PAYG pensions. This share is expected to rise to 12.5 percent of GDP in 2060 (European Commission, 2012b: 4). Due to declining fertility rates and increased life expectancy, the population aged sixty-five and above is expected to increase markedly in the coming decades. This group will almost double, rising from 87.5 million in 2010 to 152.6 million in 2060 in the EU (European Commission, 2012a). Unfavorable demographic developments, falling employment rates, and persistent financial instability put enormous pressure on public budgets and make it harder for state pension systems to deliver on benefit promises.

In this chapter, we provide essential background information that is necessary to understand what is at stake in the process of pension market integration. National pension systems are under pressure due to unfavorable demographic developments, financial constraints, and new social risks that are not covered by many traditional pension plans. These pressures politicize workplace pensions in new ways and differently across divergent types of pension regimes. This creates dilemmas for would-be reformers in Europe. On the one hand, the EU-wide harmonization of workplace pension regulations is attractive for large corporations in Europe because compliance with a single regulatory framework is easier and more cost-effective than compliance with twenty-seven different regulatory systems. Individuals also stand to gain from pension market integration since they would no longer lose pension benefits and rights if they moved across borders. On the other hand, even a partial harmonization of pension regulations at the EU level produces winners and losers since certain pension regimes are inherently better suited to accommodate EU-mandated change than others. Thus, the creation of a single pension market represents a classic cooperation problem: converging on common rules is desirable in principle, but deep divisions exist over objective and means of harmonization. Countries facing high costs of adjusting to EU directives will seek to keep the pain of reform to a minimum. This makes any common policy hard to adopt.

At first glance, the governance of pension funds across borders may seem like a simple target for EU harmonization efforts. The potential benefits seem sizeable: more integrated capital markets, fewer barriers to labor mobility and substantial savings in administrative costs for corporations. However, a single pension market requires institutional changes in sensitive policy areas. Member states must agree on the harmonization of investment, social, and supervisory regulations.

Since the mature pension fund culture and liberal investment regulations in Beveridgean states fits well with EU pension directives, these countries face fewer adjustment costs and are therefore expected to support the creation of a single pension market. Countries with a Bismarckian pension system, however, face higher adjustment costs because a single pension market requires drastic changes in investment regulations, risk coverage, as well as waiting and vesting periods. These regulations, in turn, have a major impact on economic interactions between governments, workplace pension plan sponsors, and beneficiaries. Concerns that EU harmonization efforts might destabilize established patterns of labor relations makes cooperation in this policy area problematic. In this chapter, we ask why negotiations over pension market integration failed in the early 1990s, but succeeded in 2003. Any theory should explain both bargaining breakdown and success.

We argue that the key to understanding negotiation failure and success is the process of informal signaling between the member states.

What are British interests in a single pension market, and how does the domestic social policy discourse correspond to the EU's effort to develop common pension policies? This chapter will argue that, contrary to conventional works that depict Britain as the European Union's “awkward partner” (George, 1990), Britain was quite enthusiastic about EU pension policies and frequently pushed for their adoption. While Germany had to send credible signals in order to get its preferences heard at the EU level, the maturity of the British occupational pension sector made it easy for Britain to call the shots on formulating EU pension policy. This is because both goal (pension portability) and instrument (liberalization of investment rules) of EU pension policies fit well with the existing British welfare finance nexus.

On the other hand, the British pension policy discourse is characterized by bitter disputes between the financial industry demanding a liberal pension regulator and consumer advocates requesting more efficient protection against corporate pension losses. Thus, in contrast to Germany, what needs to be explained in the British case is not the mechanisms that make signaling credible, but how the push-and-pull dynamics of British enthusiasm over pension market integration on the one hand and the inadequate representation of domestic consumer demands for a stringent pension regulator on the other fed into legislative outcomes at the EU level.

The previous chapter has focused on the informal communication flows between governments in shaping the common pension market. However, informal signaling and communication processes also influence the effectiveness of the European Commission as agenda setter. As the only institution in the EU that can formally propose legislation, the Commission can play a powerful role in securing member states' commitment to EU covenants. However, failure to act as “efficient” agenda setter may cause the Commission to get defeated in the formal decision-making process. As a result, the Commission has an incentive to assemble strategic coalitions before a proposal is put to a formal vote. Yet, which factors constitute efficient agenda setting in the area of pension market integration? What was the Commission's role in the bargaining fiasco of the early 1990s and the successful creation of the single pension market in 2003?

This chapter analyzes the agenda setting strategy employed by the European Commission. We argue that negotiations had failed in the early 1990s because of the Commission's inability to restrict the menu of policy options and frame pension market integration in a way that resonated with key domestic actors. The Commission's lopsided representation of supply-side interests and emphasis on the financial aspects of demographic aging eroded its reputation as honest broker. Furthermore, rivalries between the two Directorates-General involved in the directive prevented efficient problem solving. Consequently, negotiations ended in gridlock, although all countries had initially signalled an interest in creating a single pension market.

To eliminate obstacles to pension portability across borders, the European Commission put forward three key directive proposals between 1991 and 2005. Germany torpedoed the first pension directive proposal in 1991, offered contingent support for the second directive in 2003, and vociferously opposed the pension portability proposal of 2005. Why would German incumbents support some aspects of the single pension market, but not others?

This chapter argues that the German position towards EU pension policies needs to be explained by a combination of historical institutionalism (HI) and domestic discourse analysis (DA). Each approach by itself is insufficient to account for the articulation of preferences between 1991 and 2007. HI explains why the Kohl, Schröder, and Merkel governments – despite all fundamental differences in pensionrelated values – protected employer-sponsored book reserve pensions, a cornerstone of Germany's coordinated market economy, from the scope of EU directives. However, national trajectories of policy development are not destiny and do not predict variation in German preferences. We therefore need to include a theoretical framework that illustrates how interests were conceptualized and reframed during this period.

Discourse analysis, which consists of a coordinative dimension (who said what to whom) and a communicative sphere (how political officials justify and legitimize change), supplies this crucial piece that is missing from HI explanations. While the status quo oriented policy stance promoted by the Kohl government succeeded in delegitimizing pro-reform voices, the Schröder administration imposed an economically efficient pension reform without much public support.