Letter: Pension reform will pay for itself

Sir: You are wrong to say that the Government's new pension plan would make youngsters "pay twice" - once to fund their own pensions, and again to pay for the rest of us (Business comment, 6 March). In fact, switching from the state's chain-letter pension scheme to a properly funded system gives a vast boost to economic growth that makes the transition pay for itself.

People regard National Insurance as a tax - indeed, a tax on jobs. So people are less willing to do a job, and employers less willing to create them. But if the money is going into their own personal growth fund instead of into the Government's coffers, the incentives are reversed.

The state scheme is a financial fraud, paying a return below 2 per cent on what the average married man contributes. Singles and those above the average often get negative returns - they would be better off keeping their National Insurance contributions under the mattress.

The state scheme leaves people with less money available to save for themselves. Replacing it with a funded system means a rush of new investment into British industry, generating new economic growth.

Professor Martin Feldstein of Harvard University calculates the benefit of changing from a pay-as-you-go to a funded system in America at 3 per cent of GNP each year - doubling economic growth. It would take an economic gain of less than a tenth of that for the Government's new scheme to pay for itself, without anyone at all having to "pay twice".

Dr EAMONN BUTLER

Director

Adam Smith Institute

London SW1