Voluntary Individual Accounts: The Lessons from the U.K. Experience

Peter R. Orszag

Mr. Chairman and Members of the Subcommittee, my name is Peter Orszag. I am currently the president of an economic consulting firm, and will join the Brookings Institution next week as a Senior Fellow in Economic Studies. It is an honor to appear before the Subcommittee to discuss Social Security reform and the lessons that we may be able to draw from experiences in countries that have adopted personal retirement accounts.

My testimony this morning will focus on the United Kingdom, which has had a system of voluntary individual accounts for more than a decade. The U.K. offers two important advantages in providing lessons for the Social Security debate in the United States.

First, although cross-country comparisons are fraught with difficulties, the U.K. is similar in many ways to the United States. In addition to our shared language and traditions, both the U.K. and the U.S. are advanced industrialized economies. Many of the other countries cited in the debate over individual accounts are developing economies, which face substantially different challenges than we do. Drawing lessons for the United States from the experiences of these developing economies is particularly difficult.

Second, the U.K. is the only industrialized nation of which I am aware that allows individuals to opt out of its state-run Social Security system and into an individual account. Other industrialized countries have adopted individual accounts, but have made them mandatory. The U.K. thus provides an important case study on the operation of voluntary individual accounts…