UK's Frank Field invites José Piñera
By Bill Jamieson
[The Telegraph, London, May 1997]
I am intrigued - and delighted - that Frank Field, the new Social Security Minister (of Tony Blair's government), is taking the mandate for radical reform by the horns.
His first external meeting as minister involved an early morning engagement last Thursday at the Royal Horseguards Hotel in London's West End.
There he met José Piñera, founder of Chile's privatised pension system - one of the most sweeping social security reforms ever undertaken in recent times.
The two get on extremely well. Field was instrumental in inviting Piñera to meet members of the Commons Select Committee on Social Security last year. Somewhat to Piñera's alarm, Field took possession of his personal pension passbook.
Last Thursday's meeting was no less enthusiastic. At one point an aide of Field's suggested Piñera become a paid consultant to the UK government. Piñera's quick response was that he would be pleased to provide advice at any time but that he had a firm rule about never accepting paid consultancies from governments.
"This way," he told me over lunch later that day, "I am free to criticise if I feel they have made an error or ignored my advice."
All this augurs well. Field is a thoughtful and respected authority on social security reform, where his boss Harriet Harman does not have so sure a grip.
Indeed, his subsidiary relationship to Harman must rank as the most bizarrely inverted of the new administration.
But does it not point up the rank hypocrisy of Labour which during the election campaign derided Lilley's pension reform proposals and made tendentious claims that the Conservatives would abandon the state pension? It was misleading, and designed to scare.
Adopting the Chile model wholesale - with its mandatory contributions of 10 per cent of salary and the barest minimum of state safety-net provision - is never going to be a serious runner in the complex, patchwork quilt system here.
But there are key features Field admires: its transparency, the emphasis on personal responsibility, and the way in which the 5.6m members can identify their personal pension kitty through their individual pass-book. Piñera's advice to Field was to devise a workable reform and single-mindedly promote it throughout the country.
Field was sympathetic to the Lilley proposals but Labour is pledged to a more modest plan: maintaining the basic state pension (though it is set to slide as a percentage of final earnings) and introducing a second tier personal pension through contributions to approved private sector pension providers.
However, this is a cumbersome and expensive way to meet the pounds 1,500bn black hole of unfunded pension liabilities. The notional inflation adjusted return on National Insurance contributions has averaged 2.2 per cent over the past four decades compared with a 7.7 per cent return private pension funds have achieved.
A paper from the Adam Smith Institute calculates that NICs could be cut to one-third if the money was invested instead of going into the state scheme.
Its argument is that such a switch would save billions of pounds and be cheaper than continuing with the present pay-as-you-go, "chain letter" system. It is never too late for Labour to grasp this nettle, but the price of delay keeps going up. And unless more incentive is given to encourage the second tier system, who is going to bother?.