A Disaster Foretold? The Case of the Personal Pension

Abstract

ABSTRACT With the creation of the State Earnings Related Pension Scheme (SERPS) in 1975, pensions policy in the UK was characterized by a consensus between the Labour and Conservative parties. By the mid 1980s, under the influence of New Right ideas, the Conservatives had broken with this consensus. Conservative pensions policy now centred on the ideological objectives of promoting individual property ownership and pension provision “independent”of the State. Such objectives were central to the creation of personal pensions under the 1986 Social Security Act. This article examines the political background to the emergence of this policy and seeks to evaluate how far the stated aims have been achieved. It does this by analysing the current controversy over methods of selling personal pensions and by looking at statistical evidence on the incomes of individuals who have taken out personal pensions. The argument concludes that personal pensions have been, predominantly, taken out by groups with low incomes, and the combination of low contributions and transaction costs threatens to lead to inadequate pension provision; such problems are likely to be particularly marked for women. In turn this conclusion, when set in the context of the tax regime applying to personal pensions, raises further doubts over the extent to which “independent”pension provision is likely to be achieved.