Ownership and Security: Individualised Pensions and Pension Policy in the United Kingdom and the United States

Abstract

The paper discusses plans, supported by President George W. Bush, to introduce individualised pension provision as a form of privatisation of social security in the United States in the context of the experience of analogous policies in the United Kingdom. It argues that UK experience, which has been largely ignored by proponents of individualised pensions in the US, has pointed to a number of serious problems with such forms. ‘Personal’ pensions, developed under the 1986 Social Security Act in the UK, led to large numbers opting out of the then State Earnings Related Pensions Scheme. However, such individualised schemes came under attack on the grounds that they were a problematic means of providing adequate retirement incomes. Such criticisms were based on problems related to high transaction costs, misleading information provided in the marketing of such ‘financial products’ and falling annuity rates. Subsequent attempts to offer a more regulated form of individualised provision, under Labour governments, through the ‘Stakeholder Pension’ have proved problematic, with levels of take up below expected targets, arguably reflecting a lack of public confidence in personal pensions. It is suggested that individualised forms of pension provision such as those implemented in the UK and advocated in the US involve a central contradiction. Supporters of such schemes stress the desirability of individual ownership/assumption of risk in pension schemes. Such a rationale is necessarily universal and thus encompasses individuals on low incomes. Such individuals are, however, particularly vulnerable to the problems of individualised provision illustrated in the British experience.