U.S. Lags Behind World On Social Security Reform
August 29, 2002
Experience in Other Countries Shows Personal Accounts Can Work, Study Says
DALLAS (August 29, 2002) -- Eighty million people in 20 countries are living under reformed Social Security systems with personal retirement accounts, according to a new study released today by the National Center for Policy Analysis (NCPA). And while U.S. politicians debate whether to establish such a system in this country, an additional 10 countries are moving to introduce similar reforms.
"Other countries have been getting their financial houses in order," said the study's author, Estelle James, a former economist at the World Bank. "In the United States, we have been slow to act."
The study shows that while there are differences among reformed systems, they also have much in common. In most cases contributions to the accounts are mandatory for new entrants to the labor market and investment decisions are regulated. The study says that the U.S. can learn several lessons about Social Security reform from the experiences of other countries:
- Private sector control over retirement funds is more desirable and more profitable for beneficiaries than a government controlled fund, like the U.S. Social Security trust fund.
- Individual accounts can be created in a way that minimizes administrative costs.
- Personal retirement accounts, if structured properly, protect workers from undue risk.
- The accounts are usually accompanied by a modest public benefit that provides added protection for low-income workers.
"Any retirement plan that spans the worker's lifetime is bound to have some risks," said James. "But it's much riskier for young workers not to reform the system at all. Reform puts the system on a much more sound financial basis."
According to the study, countries that have created funded privately managed retirement accounts include Argentina, Australia, Bolivia, Chile, Colombia, Croatia, Denmark, El Salvador, Hong Kong, Hungary, Kazakhstan, Latvia, Mexico, the Netherlands, Peru, Poland, Sweden, Switzerland, the U.K., and Uruguay. Several others are in the process of introducing retirement accounts, including China, Dominican Republic, Germany, Kosovo, and Macedonia.
"The U.S. has a large unfunded liability under Social Security," James said. "The longer we wait to solve it, the worse our problem will become and the more painful will be the ultimate solution."