The costs of social security continue to rise with each and every year, maybe the time has come to utter the unutterable – should we be reforming social security.
Across the United Kingdom, it cannot be denied that we have an ageing population and one in which the ratio of workers to retirees is dropping with each passing day. Indeed, back in 1940, the income tax of 159 workers paid for the welfare of one retiree, now that has dropped, meaning that there shall soon be people retiring each year than there are entering work. There is at present a looming deficit, as shown in the United States of America, in which more is paid out in social security that is received in contributions from the workers.
The current system does not work, and thus it must be changed.
Simply put, if it is broke, you fix it.
One proposed suggestion, floated by some of the more radical think tanks, takes a look at market-linked, private retirement accounts, funded with existing taxation, reducing social security debt and bringing the system back into solvency. With private accounts, retirees will see a far higher return on their investments than is possible under the current system – the S&P 500 for example, sees an average 6.38% annual return – far higher than the payouts under the current system.
An additional note in favour of such a proposal would commit the retiree to have decisions over their own retirement, allowing the worker to take personal ownership over their lives and their earnings.
Such accounts have a further benefit, as stated by Peter Ferrara, former Director of the International Center for Law and Economics:
“The reduced tax burden and higher savings and investment resulting from personal accounts would substantially boost economic growth. This would result in more jobs, better jobs, and higher wages and overall income.”Peter Ferrara
Indeed, when Chile took this action in 1981, they saw an annual DNP growth of 40% and a boost in GDP of some 7% per annum. A modern economy, a modern pension system – which empowers the worker, and removes the wasteful government, red tape and spending from the equation. Indeed, this would allow us as a nation to abolish the Pensions Department at the Department for Work and Pensions for a more effective Government.
So not only do we see the individual choice empowered, but we see safer retirement, and finally – we see minority groups protected in the process. Within certain communities, we see life expectancy as much lower, basically meaning that their income is transferred to people with longer life expectancy because the latter group can collect their benefits for longer. A move toward a private, more intimate pension system, would empower minorities giving all ownership over their own retirement.
This new, radical approach to reforming one of the most urgently in need of reform sectors in the Government’s docket, would need to be done gradually so as to protect existing and soon-to-retire citizens, but, once performed, could unshackle a new era of pensioner wealth and opportunity on a more open and fair basis.
Lord Salisbury is a member of the LPUK, his views as expressed here do not represent those of the Spectator or policy of the LPUK.
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