(Note: The former Prime Minister of the United Kingdom, Boris Johnson, wrote about the Chilean capitalization system after, in June 1996, Labour MP Frank Field, chairman of the House of Commons “Social Security Committee,” invited José Piñera to testify before the Committee. Three months later, a delegation from that Committee, led by Field, visited Chile for a week to examine the capitalization system in depth. In March 1997, Peter Lilley, Social Security Minister in the Conservative government, announced that the United Kingdom would introduce the capitalization system. The Financial Times wrote that this would be “the most radical reform of the Welfare State since the Second World War.” The Wall Street Journal published a supportive editorial on 4.26.97. However, Prime Minister John Major called early elections and lost them, preventing the Chilean system from being “imported” to Great Britain at that time.)

 

There is no investment more attractive for the United Kingdom than the parliamentary Social Security Committee's expedition to Chile. It is something far better than the Undurraga wine we import from Chile: their capitalization pension system.

 

Sooner or later, in one form or another, we will import the Chilean system, whose creator, the economist Dr. José Piñera, was recently in London explaining it.

 

The English pay-as-you-go system, in which current workers pay taxes for the pensions of retirees, generates two antagonistic groups: retirees pressing for higher pensions and workers demanding lower taxes.

 

In the Chilean system, the 10% salary contribution is not for the state but for a personal savings account managed by specialized private companies. Big Brother cannot access those funds. The money belongs to the worker. Very different from the vague promise we have in Great Britain that the state will pay us some amount in the future, always subject to political whims and budgetary constraints.

 

As Dr. Piñera explained, the capitalization system turns all workers into owners. The system's benefits also extend to the economy, as it has generated 7% annual growth with a 27% savings rate.

Chilean pension fund administrators are subject to strict regulation that requires them to diversify investments to protect workers' savings and also seek better returns in Chile and in global markets.

 

The Chilean system includes a fiscal contribution to reach a minimum pension for those individuals who had difficulties saving enough.

 

This novel capitalization system designed in Chile can work in Great Britain. It would greatly relieve the heavy British state burden that prevents allocating resources to other productive purposes. And as its creator says, it restores the natural connection between effort and reward.