By international standards, the 1986 British pension reform constitutes one of the most radical departures from the traditional west European post-war approach to pension policy. As a consequence of this reform, British employees can now opt out of the state second-tier pension or of their occupational pension and make individual provision for their retirement through a private and personal pension. The significance of this change is twofold. On the one hand it constitutes a major shift from the state to the market in pension provision, with the implication that the redistributive function and the role of guarantor played by the former are substantially reduced. On the other hand, the introduction of the optingout clause means that fewer people are now paying into the state scheme which impairs its ability to meet existing and future pension commitments and thereby provides an incentive to the remaining employees to opt out of the state system. The impact of the 1986 Social Security Act has been substantial. Partly as a result of it, the UK is the only major industrial country which does not have a financial problem in meeting future pension commitments (see tab. 1.3). On the other hand, other problems have emerged, like the lack of adequate coverage for employees on low incomes or in intermittent employment, which personal pensions are unable to provide.

It is useful to recall that the debate and the adoption of the British reform occurred in a particular ideological and political climate.