Friday, 19 September 2008

The thing with Personal Accounts

There has been a lot of talk about Personal Accounts, some of which seems to miss what I think is the most important underlying point.

For example, UK IFA Net financial adviser Andrew Buchanan suggested in Money marketing the other day that the government would do better to simply raise the state pension and National Insurance contributions accordingly. Steve Bee has also argued that Personal Accounts would reduce some individuals' ability to claim means-tested benefits, and that the government should be bolstering the existing S2P rather than switching people into a new scheme (i.e. Personal Accounts).

What both seem to have missed is that, if I am not mistaken, the existing benefits are all unfunded, whilst Personal Accounts are funded. That is, the existing benefits will all be funded out of my (and your) future taxes. Now, I don't know about you, but I'd rather my future taxes went to things more useful than paying the pensions of individuals who did not want to fund them themselves through Personal Accounts contributions. I think the existing unfunded arrangements should be limited to paying pensions for people who are truly unable to fund their own pensions.

It follows from the above, that I'd also be inclined to support a compulsory pensions savings regime. But I would want it to be provided by the private sector with full competition, rather than by a parastatal.