Britain
Margaret Thatcher came to power in 1979 ideologically committed to controlling the
growth of public expenditure, cutting government deficits, and scaling back the role of the state.
Her Chancellor of the Exchequer Nigel Lawson sought both to restrain state budgets in the near
term and to moderate the long-term trajectory of government spending. While a range of
program areas from defense to education were cut in pursuit of the Treasury’s near-term goals,
pension reform would play a central role in the government’s longer-term strategy of controlling
state spending. On the one hand, the accumulation of earned pension rights made quick savings
hard to achieve. On the other hand, public pension outlays were scheduled to grow steeply and
automatically over the next several decades, both as the ranks of retirees swelled and as the
contributory program adopted by the previous government matured.
Yet Thatcher did not want to see pensioners’ overall fall. If state pensions were to be cut
back, an expanded private pension sector could provide an alternative form of provision for
retirement. Though private employer-provided pensions were widespread, a number of
motivations drew Thatcher’s ministers toward even more individualized arrangements. Personal
pensions would be ideal vehicles of the vibrant “popular capitalism” touted by free-market
thinkers within the Conservative Party. Unlike either occupational or state pensions, the
accumulation of assets in personal, invested accounts would give individuals an ownership stake
in the market economy and responsibility for their own future welfare. Just as importantly, while
occupational pension rights were often lost when workers changed jobs, personal pensions would
follow the individual, enhancing both retirement security and labor-market flexibility.
Yet, shifting pension provision into the private sector, by the very nature of that arena,
would require a major policy investment. Unlike state pensions, which could be paid out of
current tax receipts, private pensions could pay benefits only out of assets that had been
accumulated by the time of retirement. Thus, the construction of a system of private pensions
could only happen gradually, through years of workers’ and employers’ contributions. Thus,
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Convention