In the United Kingdom, these costs reduce the value of an account at retirement by approximately 10 percent, on average. In other words, more than 40 percent of an account's value is dissipated by fees and costs. This estimate is based on actual data from financial providers. It reflects a comprehensive treatment of costs associated with individual accounts. Some 43 percent of the value of individual accounts in the United Kingdom is consumed by various fees and costs over a typical worker's career.
Costs depend on the structure of individual accounts.
Other approaches to individual accounts would allow individuals more choice through a decentralized system, under which individuals would be allowed to choose their own financial provider and to invest in a wider array of assets. Under the decentralized approach, the accounts would be similar to Individual Retirement Accounts, which can be held with a variety of financial providers and which impose few restrictions on permitted investments. In addition to considering the broader question of whether to create individual accounts, policymakers in the United States must consider what type of individual accounts to create if they decide to adopt such accounts. A full analysis of the pros and cons of individual accounts is beyond the scope of this paper. The U.K. experience vividly illustrates, however, that if individual accounts are created in the United States, a decentralized approach could carry a variety of potential dangers.