PRIVATE ACCOUNTS….A CASE HISTORY….A couple of decades ago Britain undertook pension reform. Their solution will sound eerily familiar to anyone following George Bush’s Social Security proposals: Phase 1 slashed benefits by indexing future increases to prices instead of wages and Phase 2 promised to make up the difference via private accounts. So how did it work out?
At the exact moment that America contemplates replicating this disaster, many in Britain ? some conservatives included ? are looking more and more kindly on American Social Security as a model for reform. The National Association of Pension Funds, a group of employers who sponsor the nation?s largest schemes, is urging government not to expect the private sector to shoulder the burden of keeping the nation?s elderly from poverty. Chief executive Christine Farnish notes that it?s ?actually cheaper for the state to carry the risk,? adding that in looking for a system that offers the best combination of modest guaranteed retirement beneﬁts delivered at low cost, the U.S. Social Security program seems the best model. ?It doesn?t have to make a proﬁt, and it delivers efﬁciencies of scale that most companies would die for,? she says.
Private pensions turned out to be riskier, more expensive, and more subject to fraud than government sponsored pensions. George Bush, of course, is trying to convince Americans that exactly the opposite will be true of his plans. Maybe he should have one of his famous chats with Tony Blair before he goes any further with this flim-flammery.