The Lesson of British Retirement Privatization

Raise your hand if you knew citizens of Great Britain are allowed to choose private, market-based retirement accounts over the government system? There’s a good reason why American supporters of privatization have been reluctant to talk about Great Britain’s experience. Enacted under Margaret Thatcher, the private accounts were supposed to free the people from the chains of government. The result, as reported in the Washington Post, has been less than stellar.

[F]or many investors Thatcher's plan has fallen flat. Many investment funds charged huge commissions and fees, leaving contributors worse off than they would have been in the state system. The stock market collapse four years ago compounded their losses. Meanwhile, many private pension plans have gone bust, after companies drained those plans to pay off rising debts.

These days many of the same insurance companies and banks that heavily sold their funds are sending out letters suggesting that customers rejoin the state system. Since November alone, an estimated 90,000 clients have followed that advice.

This should serve as a very important lesson for (and perhaps a strong warning against) privatization of Social Security here in the U.S.