Experiences of other nations
The United States has been torn apart with the ongoing discussion about privatization of Social Security. While the proposals never caught the imagination of American people, President Bush and his supporters have continued to talk about it non-stop. Many analysts now argue that the president is fully aware that this is going nowhere, but can be a great way to energize the base during the forthcoming mid-term elections, and possibly the 2008 presidential elections.
Thirty countries have reformed their pay-as-you-go Social Security systems with personal retirement accounts (PRAs). As a result of these changes, Britain, Chile and many others have virtually no unfunded liability. By contrast, the U.S. Social Security system is facing an unfunded liability of $11 trillion — about the size of the entire U.S. economy.
Chile, Switzerland, the Netherlands and the United Kingdom were the first countries to incorporate personal retirement accounts, in the 1980s. Most countries in Latin America, Eastern and Central Europe, as well as some in the Asian-Pacific region, created similar systems during the past 10 years. According to a study about international experiences by the National Center for Policy Analysis (NCPA):
– More than 75 percent of workers’ benefits in most Latin American countries and more than 50 percent in most Western European nations will come from their new personal account.
– Funding for the accounts ranges from a low of 2.5 percent in Sweden to 14 percent of income in the Netherlands.
– In two-thirds of the countries, the accounts are funded by taxes carved-out of payroll taxes workers are already paying into the system, similar to the approach favored by the Bush administration and most proposals before Congress.
– Most countries that use a carve-out approach gave individuals already working a choice between the old and new systems; but practically every country (except Argentina, Colombia and the United Kingdom) requires new labor market entrants to enroll in the new systems.
– Most countries require workers to receive their retirement benefits in the form of an annuity or gradual withdrawal from their personal retirement accounts. However, most Latin American systems allow lump-sum withdrawals once retirees have funded their retirement income.
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