Britain May Give Social Security to Private Firms Major Looks to Chile for Dramatic Pension Reform and 'Big Idea' for Election

By Alexander MacLeod, Monitor | The Christian Science Monitor, March 12, 1997 | Go to article overview

Britain May Give Social Security to Private Firms Major Looks to Chile for Dramatic Pension Reform and 'Big Idea' for Election


Alexander MacLeod, Monitor, The Christian Science Monitor


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 needs." 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 lose. One of the prime minister's officials said he wanted a "big idea" to show voters that the Conservatives were still capable of "constructive policymaking." 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. …

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