NCPA - National Center for Policy Analysis


December 2, 2005

Like America's Social Security, Britain's public pension system is in rough shape, says the Heritage Foundation. The Turner Commission, charged with working out a plan to firm up British pensions, released its report which contains two major provisions. The first, essentially a benefits cut, would gradually raise the retirement age to 68 by 2050 and is similar to measures that have been proposed for the U.S. Social Security system.

The second provision is much more interesting, says Heritage:

  • The Commission endorses a new voluntary savings scheme, into which workers would put at least 4 percent of their wages, with employers contributing 3 percent more and a further 1 percent coming from the government in the form of tax relief.
  • While the system would be voluntary, the commission suggests making it "opt out" rather than "opt in," meaning that workers would be automatically enrolled, but could choose not to contribute if they wished.
  • Recent research indicates that "opt out" systems substantially raise the rate at which workers contribute.

According to the Economist:

  • The problem, in a nutshell, is that governments have simply promised pensioners more than a shrinking workforce can realistically deliver, and even now few of them are facing it square-on.
  • Fixing the problem means big bills -- to deliver on promises to current retirees in the (pay-as-you-go) systems, and to put new workers into schemes that are more actuarially sound because they rely more on growth-enhancing investments.
  • This would enable the economy to support more retirees per worker, but it remains to be seen whether politicians are any more willing than their voters to delay gratification.

The evidence so far is not encouraging.

Source: "Sound Familiar?" Heritage Foundation, November 300, 2005; "New thinking on old age," Economist, November 30, 2005; and "A New Pension Settlement for the Twenty-First Century," Pensions Commission, November 30, 2005.

For Economist text (subcrsiption required):


Browse more articles on Tax and Spending Issues