Will Retirement Become a Personal Responsibility; L. W. Reed

Of course, don't rule out the prospect of a reduction in benefits, which might come in one or more disguises such as raising the age at which one can begin collecting checks. This much is clear: trusting to politicians to take care of you in your old age is costly, unpredictable, and therefore dangerous. Those who warned of this when the system was established in 1935 were pilloried as Lawrence w: Reed, economist and author, is president ofthe Mackinac Center for Public Policy, a free-market research and educational organiza tion headquartered in Midland, Michigan. by Lawrence W. Reed heartless and stingy but they now look like the wisest prophets of their day. It's too bad many of them are not around in 1997 to help us untangle the mess they foretold. As a solution, advocates of the privatiza tion of Social Security often point to Chile's remarkable success in that very endeavor. But Americans need not look any further than Great Britain for some of the same lessons. British workers, optimistic about how they'll fare in their senior years, are relishing the prospect of a pool of pension funds greater than that of all other Euro pean countries combined.

Why do the British have far less anxiety about their financial future than their American counterparts? They are not, as a Heritage Foundation report recently pointed out, "locked into a rigid, financially troubled government-run system." A few years ago, Britain partially privatized its retirement program, allowing workers to invest a portion of their payroll taxes in private pension funds. While Americans are not permitted to invest any amount of their 12.4 percent Social Security payroll tax in private equities or retirement plans, three quarters of all British workers are enrolled in private plans through their payroll taxes. Since 1986, Britons have been earning double-digit rates on their retirement funds while today's young working Americans must hope to live well beyond the age of 100 before their "investment" in Social Security begins to payoff. What's good for the workers is good for the Treasury as well.

731 732 THE FREEMAN • DECEMBER 1997 The Heritage Foundation report, "Social Security Privatization in Britain: Key Les sons for Reformers," says that by restruc turing and privatizing their pension system, allowing consumer choice and competition among private pension plans, and control ling entitlement spending, the British have amassed a pool of financial assets (or cap ital) second only to the United States and Japan. Officials are even predicting that at the rate things are going, Britain will payoff its entire national debt by the year 2030! While both Chile and Britain are valuable models, Americans have domestic examples to learn from. Three counties in Texas had the good sense to get out from under the Social Security pyramid scam years ago. A loophole in the original Social Security law allowed municipalities the freedom to opt out, an escape hatch Congress closed in 1983. Three Texas counties took advantage of it while it was in effect and as a result, retirees under the private plans in use there are getting several times the monthly re tirement check they would have received had they stayed in the government system.