How to Create a Competitive
Market in Pensions

The International Lessons

By Michael Littlewood
Sept. 1998
Institute of Economic Affairs
ISBN: 0-255-36437-7
264 p.
$25.00 Paper Original

Traditional pay-as-you-go pension schemes are rapidly becoming unsustainable, thanks to low birth-rates, increasing life expectancy and rising living standards. But how should we go about reforming pension schemes which, whether state-run or private, whether funded or unfunded, involve financial amounting to a sizeable proportion of GDP?

In this book Michael Littlewood looks at the methods which are used to provide retirement income in countries from Australasia and America to Europe. He looks at the three 'pillars' or 'tiers' of pension provision - state, workplace and private savings - and at the different approaches which governments can take: 'command and control', the use of financial incentives, and the free market. Most governments combine a mixture of the first two, but none goes so far as to rely on the third.

In spite of this, Littlewood argues that the voluntary approach is best. Compulsory schemes fail to respect the different needs of different people, and distort savings and investment markets. Incentive-based schemes, which offer tax breaks on certain forms of investments, also distort markets and subsidise one section of the population - often the better off - at the expense of another, with no demonstrable benefits. In terms of choice, equity, cost-effectiveness and optimum returns, individuals and the economy in general are likely to benefit most from a voluntary and unsubsidised regime.

Series: Choices in Welfare

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