While American politicians fret and stall over reforming Social
Security, Britain may be about to take dramatic action.
Social Security Secretary Peter Lilley is proposing to phase out
pensions paid for by taxes and require all workers to provide their
own private pensions.
In his search for models to replace both the state pension
introduced in Britain in 1948, and a second-tier, earnings-related
pension dating from 1975, Mr. Lilley has looked to Latin America.
He told Parliament earlier this month that a growing inability
of governments to pay for pensions through taxes is a "worldwide
phenomenon" that needs a "fair" solution "suited to Britain's
Lilley found his inspiration in a pension plan introduced in
Chile in 1980. Last year, British government officials say, Lilley
held talks with Jose Pinera, the economist who invented Chile's
system, which is only now getting under way.
The new system is expected to wipe out that country's social
security deficit in 30 years. In Chile, workers pay 10 percent of
their earnings into one of 18 specified funds. The system is being
copied in Argentina, Peru, and Mexico.
The British government's proposals would dismantle a sizable
chunk of the country's tax-hungry welfare state and create what
Prime Minister John Major describes as "a revolution in pensions
provision." But the plan, which would offer all retired people a
tax-free pension of at least L175 ($280) a week (the current state
pension is L61 a week), is attracting criticism from some leading
members of the opposition Labour Party, which introduced the
tax-funded state pension soon after World War II.
Harriet Harman, Lilley's Labour Party "shadow" in the House of
Commons, described the government's plans as "a really chilling
prospect for hard-working families." Bill Day, pensions officer of
the General Workers' Union, spoke of "pension poverty" resulting
from the reforms.
Seeking to answer such criticisms, Mr. Major told the Commons
that, although workers in the future would be required to take out
a private pension through an insurance company, future governments
would "intervene and make up the difference" if their plans yielded
less than the projected weekly payment of L175.
Major and Lilley surprised even some of their close political
associates by unveiling a controversial program only two months
before a general election that the government is widely forecast to
One of the prime minister's officials said he wanted a "big
idea" to show voters that the Conservatives were still capable of
In fact, however, says Frank Field, a senior Labour Party
politician who favors private pensions, Major and Lilley are
responding to a problem that is afflicting developed economies as
far apart as Germany, Sweden, the United States, Japan, Singapore,
and Australia. …