Booth & Niemietz: Growing the UK Pension Pot – The Case for Privatization

From the Summary:

The system of contracting out of state pensions – a form of pension privatisation – operated very successfully in the UK until recent years with cross-party support. This was very important in ensuring that the UK system of private pension provision was one of the most successful in the Western world. This paper proposes reviving the concept of voluntary pension privatisation through contracting out using the proposed reformed UK pension system that will be introduced from 2016.

Under the proposals, individuals would receive rebates of national insurance contributions equal to the fair actuarial value of the pension that they will forego as a result of opting out of half the state pension. The rebates will be paid to somebody contracting out regardless of whether that individual pays sufficient cash national insurance contributions: the rebates are designed to reflect the actuarial value of the pension foregone. They will vary with age and be available to low earners and those who are receiving state pension entitlement as a result of undertaking caring responsibilities. Such people will be able to build up considerable pension assets in their own right. In the context of widespread discussion about the inequalities arising from returns on capital being higher than economic growth, this might be regarded as especially important. Currently, large numbers of people are discouraged from accumulating capital because the main objectives of saving are fulfilled by the state pension schemes.

 

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