Social Security: Reform, Refund, or Opt Out? (Part 4)

Posted: May 19, 2009 | Author: | Filed under: U.S. Economy | Tags: , , | Comments Off on Social Security: Reform, Refund, or Opt Out? (Part 4)

elderly%20ladiesThe aging burden is upon us and solutions are required quickly.  People are living longer.  There are three responses households face: consume less and save more when young, consume more and have lower monthly benefits when older, or work longer.   They should make these decisions with a combination of their own savings and employer savings plans.  They should plan retirement based on their preference to work and their health.  They should also be able to rely on a minimal public pension plan so that no one fears dying a bag lady. 

Government should respond when the public pension system is out of balance.  There should be a mandated cycle of revision.  The plan should be evaluated at least every five years and changes should be recommended by professionals to policymakers. Responses include: cutting benefits, raising taxes or contributions, subsidizing the program from general revenues or by issuing some form of debt, and generating a higher rate of return on the Trust Fund’s assets.  There is still the question of generational risk-bearing and redistribution answered by the pre-funded or PAYG choice.  Will the bigger burden lie with future generations or current generations?  It appears we must deal with the PAYG choice made during the depression years one way or another.

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Social Security: Reform, Refund or Opt-Out? (Part 3)

Posted: May 18, 2009 | Author: | Filed under: U.S. Economy | Tags: , , , , , , , | Comments Off on Social Security: Reform, Refund or Opt-Out? (Part 3)

Lessons from the World

One of the most interesting things about the large number of countries Osaka Asahi Shinbunreforming their public pension programs is how dissimilar many are to the United States.  A large number are in Latin America or are Asia countries that are not experiencing the demographic challenges faced by the United States.  Instead, they reform their systems because the old systems have lost their store of value function.  Privatization is required because the trust between recipients and their governments has broken down.  Chile (1981), Columbia (1993), Peru (1993), Mexico (1997), Bolivia (1997), El Salvador (1998) and Kazakhstan (1998)  have the least future demographic problems, are not developed countries, and have had the largest reforms.[1]  The expected retirement benefits in these countries are now derived from the income produced by an asset portfolio in individual accounts.

The most moderate reforms have happened in countries with high per capita incomes and severe demographic problems.  These countries include Switzerland (1985), the United Kingdom (1986), Denmark (1990), Australia (1992), Argentina (1994), China (1995), Uruguay (1996), Hungary (1998), Sweden (1998) and Poland (1999).  These developed countries have adopted systems that blend defined contribution accounts with a defined benefit.  Germany and Japan have serious demographic problems.  They are also highly developed countries.  They—like the United States—have passed minor reforms.  These countries have less suspicion that their government will not provide secure retirement resources somehow.  Traditional PAYG systems require a “social contract.”  Trust between workers of different generations is higher developed countries than in developing countries.  Trust between households and government is also higher.

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