Lilley goes to Chile for advice on pensions

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The Independent Online
Peter Lilley, the Secretary of State for Social Security, is to visit Chile - a move that observers believe could herald an attempt by a future Tory government to privatise the rest of Britain's state pension system.

In 1980, Chile pioneered aswitch from the type of pension scheme used in the UK - a state-run pay-as-you-go system, with pensions paid for out of current tax and national insurance contributions - to a fully funded system which, in effect, provides private pensions for all. Contributions are invested in the stock market by competing pension providers, who pay out benefits from the proceeds.

In the UK, the idea has received enthusiastic backing from the free- market think-tank, the Adam Smith Institute. It is advocating "fortune accounts" which would replace not just the rest of Serps, the State Earnings Related Pension Scheme, and the basic state pension, but other benefits.

Mr Lilley was due to visit Chile this week, but decided to postopne his trip when he found that the Commons Social Security Committee, which is also examining Chile's pensions revolution, would be visiting the same officials at the same time.

A significant part of Serps has already been privatised by persuading people to opt out in favour of personal pensions. But a large part remains, mainly covering the lower-paid, as does the basic state pension, which between them raise and pay out pounds 30bn per year.

A DSS spokesman said the visit was to keep up to date with social security developments elsewhere. But the idea of switching to a fully funded pension system has enthusiastic backers on the Tory right, including David Shaw and Bernard Jenkin, members of the social security committee, who are expected to brief Conservative Central Office on their return from Chile.

Mr Lilley has underlined the difficulty of privatising the basic pension. Colleagues, while remaining interested, also acknowledge important differences between the UK and Chile.

However, Frank Field, the Labour chairman of the committee, said that attempting a massive privatisation of pensions now would risk inflating share prices or require the Government to issue bonds to mop up the extra savings.

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