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Private Alternatives To Social Security in Other Countries
Notes
1 This section is based on Office of Research and Statistics, Social Security Administration, U.S. Department of Health and Human Services, Social Security Programs Throughout World 1993, Research Report #63, SSA Publication No. 13-119 05, Washington, DC, May 1994. back2 World Bank Policy Research Report, Averting the Old-Age Crisis: Policies to Protect the Old And Promote Growth (New York: Oxford University Press, 1994). back
3 Carmelo Mesa-Lago, "Comparative Study of the Development of Social Security in Latin America," International Social Security Review, February 1986, Table III, p. 137. back
4 Much of this section is based on Mukul G. Asher, "Compulsory Savings in Singapore: An Alternative to the Welfare State," National Center for Policy Analysis, NCPA Policy Report No. 198, August 1995. back
5 This represents a decline from about three-fourths of the labor force in the 1980s. Those not covered include foreign and part-time workers. The self-employed have only recently been included. back
6 All amounts in Singapore dollars are preceded by "S." The current rate of exchange is about $1.40 Singapore to $1.00 U.S. The average annual salary is S$25,032, excluding the employer’s 20 percent contribution to the CPF. back
7 Throughout this section, we make the normal economic assumption that any payroll taxes or fringe benefits paid by employers are amounts that otherwise would have been paid to employees in the form of wages. back
8 When parents have a low CPF balance as a result of having earned low wages or having purchased a home with money from their account, their children may top up the parents’ account by transferring money into it. Such contributions are tax-advantaged, but a primary reason for helping their parents is that adult children are legally required to do so. back
9 For members ages 45 and above, the amount going into the Medisave account is increased from 6 percent to 8 percent to offset higher expected health care costs, and the amount going to the Ordinary account is reduced to 28 percentage points to offset the Medisave increase. back
10 While the government generally has limited the use of Medisave funds to hospital care, it has been expanding its list of approved expenditures. For example, it now permits members to use Medisave funds for psychiatric care, renal dialysis and chemotherapy. However, members are still prohibited from using Medisave funds for outpatient care, physician fees, outpatient renal dialysis or long-term care. If money runs short, family members can pool their Medisave balances to pay a hospital bill, and some government hospitals allow patients to settle their bills from future Medisave deposits. back
11 There is no way of determining what the average Medisave balance is, but it probably runs between S$3,000 and S$4,000.back
12 For example, Class A wards are the nicest rooms, with private or semiprivate accommodations, and are meant to compete with the private sector. Patients must pay 100 percent of the cost of these rooms. Class B1 wards receive a 20 percent government subsidy, with the patient paying the balance, and accommodate four people to a room. Class B2 wards have six patients per room and no air-conditioning, but patients pay only 35 percent of the cost. Class C wards have 10 to 20 people in the room and are the least expensive, receiving an 80 percent subsidy from the government. back
13 William C. Hsiao, "Medical Savings Accounts: Lessons From Singapore," Health Affairs, Summer 1995, pp. 262-63. back
14 Some employers also purchase private insurance for their employees. However, they are permitted to deduct no more than 2 percent of payroll for health insurance. Employer-provided policies are the least expensive high-deductible policies, covering only basic care. back
15 The existence of Medishield does not solve the financial problem of those who have an inadequate Medisave balance, but it is an improvement over Medisave alone, since people now have a way to pay catastrophic costs. back
16 Thomas A. Massaro and Yu-Ning Wong, "Positive Experience With Medical Savings Accounts in Singapore," Health Affairs, Summer 1995, pp. 267-71. back
19 These are housing units built by public sector statutory boards. The land, however, is owned by the government. back
20 The rule also applies to purchase of private residential housing and nonresidential properties. back
21 This is similar to a credit life policy in the United States. It pays off an outstanding note should the borrower become incapacitated or die. back
22 While the annuities provide regular financial income to the retiree, there is some concern on the part of the government that the minimum is too low. As a result, this amount will be incrementally increased to S$80,000 by July 2003, of which at least S$40,000 must be in cash. The increase in the cash amount is to help ensure that retirees will have an adequate income after retirement. back
23 This section is based on Sergio Baeza, ed., Analysis de la Prevision en Chile (Santiago, Chile: Centre de Estudios Publicos, 1986); Jose Pinera, "Chilean Trade Union and Social Security Reform and Its Effect on Employment," (unpublished manuscript, 1985); Peter J. Ferrara, "The Privatization of Social Security in Chile," Journal of Economic Growth, Vol. 3, No. 3, Spring 1989; Jose Pinera, "Chileans Unravel Social Security Tangle," Wall Street Journal, January 3, 1986, p. 11; Robert J. Myers, "Privatization of Chile’s Social Security Program," Benefits Quarterly, Vol. 1, No. 3, Third Quarter 1985, pp. 26-35; Robert J. Myers, "Chile’s Social Security Reform, After Ten Years," Benefits Quarterly, Third Quarter 1992, pp. 41-55; Marco Santamaria, "Privatizing Social Security: The Chilean Case," Columbia Journal of World Business (Spring 1992), pp. 38-51; Karl Borden, "Dismantling the Pyramid: The Why and How of Privatizing Social Security," SSP No. 1, Cato Institute, Washington, DC, August 14, 1995. back
24 The acronym IRA is not common in Chile and is used here for the convenience of U.S. readers. back
25 There is no legal limit on the number of investment companies that can be formed and authorized. New ones may enter the system in future years. Workers can join together and form authorized investment companies on their own or through their unions, and two authorized investment companies have been formed by worker groups. back
26 For example, no more than 30 percent of an AFP’s portfolio may consist of common stocks and no more than 7 percent may be invested in the stock of any one company. Corporate bonds may account for no more than 50 percent of an AFP’s assets. back
27 Such withdrawals are subject to limits based on the life expectancy of retirees and their surviving dependents, so the funds cannot be completely depleted before their death. back
28 This was done to ensure that the reduction in social security taxes paid by employers was immediately passed on to workers in the form of higher wages. Although normal market forces would have accomplished this result in time, the Chilean government wanted to build political support for its program quickly. back
29 Robert Genetski, "The Coming Revolution in Social Security," Robert Genetski & Associates, Inc., October 5, 1994, p. 1. back
30 Personal communication to Peter J. Ferrara. back
31 Myers, "Chile’s Social Security Reform, After Ten Years," p. 45. back
32 This section is based on John C. Goodman, Social Security in the United Kingdom: Contracting Out of the System (Washington, DC: American Enterprise Institute, 1981); John C. Goodman, "Private Alternatives to Social Security: The Experience of Other Countries," Cato Journal, Vol. 3, No. 2, Fall 1983, pp. 563-73, reprinted in Peter J. Ferrara, ed., Social Security: Prospects for Real Reform (Washington, DC: Cato Institute, 1985), pp. 103-12; Janet Walford, Personal Pensions (London: Financial Times Business Information, 1987); and Christopher Dayken, "Occupational Pension Provision in the United Kingdom," Pension Research Council, Working Paper Series 94-10, The Wharton School of the University of Pennsylvania, August 1994. back
33 As in Chile, the term IRA is not common in Britain and is used here for the convenience of U.S. readers. back
34 During their careers, employees may work for several employers who are contracted out and several employers who participate in the government’s system. As a result, retirees may receive part of their earnings-related pension income from the government and separate pensions from each of the contracted-out employers for whom they worked. back
35 See the discussion in Walford, Personal Pensions, pp. 14-19. back
37 See E. Victor Morgan, Choice in Pensions: The Political Economy of Saving for Retirement (London: The Institute of Economic Affairs, 1984), p. 43. back
38 Ibid., p. 37. The real rate of return on inflation-indexed securities has been averaging 3.5 percent to 4 percent. See Report of the Government Actuary, Occupational Pension Schemes (London: Her Majesty’s Stationery Office, 1987), p. 5. back
39 This section is based on William G. Poortvliet and Thomas P. Laine, "A Global Trend: Privatization and Reform of Social Security Pension Plans," Benefits Quarterly, Third Quarter 1995, pp. 63-83; Karl Borden, "Dismantling the Pyramid: The Why and How of Privatizing Social Security," Cato Institute, SSP No. 1, August 4, 1995; William McGeevrey, "Social Security in Latin America: Issues and Options for the World Bank," World Bank Discussion Paper No. 110, 1990; and World Bank Policy Research Report, Averting the Old-Age Crisis. back
40 See Martin Feldstein, "National Saving in the United States," Harvard Institute of Economic Research, Discussion Paper No. 506, October 1976; "Toward a Reform of Social Security," Public Interest, Summer 1975, pp. 75-95; and "The Optimal Financing of Social Security," Harvard Institute of Economic Research, Discussion Paper No. 388, November 1974. Also, see J. A. Stockfish, "Measuring the Social Rate of Return on Private Investment," in Robert L. Lind, ed., Discounting for Time and Risk in Energy Policy (Washington, DC: Resources for the Future, 1982); D.M. Holland and S. Myers, "Trends in Corporate Profitability and Capital Costs," in R. Lindsay, ed., The Nation’s Capital Needs (New York: Committee for Economic Development, 1979), pp. 103-89; J. A. Gorman, "Nonfinancial Corporations; New Measures of Output and Input," Survey of Current Business, March 1974; and J. A. Stockfish, "The Planning-Programming-Budgeting Systems: Progress and Potential," Hearings before the Subcommittee on Economy in Government, Joint Economic Committee (Washington, DC: U.S. Government Printing Office, September 1967), pp. 133-43. back
41 Peter J. Ferrara, Social Security Rates of Return for Today’s Young Workers (Washington, DC: National Chamber Foundation, 1986). back
42 Ferrara, Social Security Rates of Return for Today’s Young Workers, updated to constant 1995 dollars. back
About the Authors
Peter J. Ferrara
is a Senior Fellow of the National Center for Policy Analysis. He is a former Senior Fellow of the Cato Institute and the Heritage Foundation and was the John M. Olin Distinguished Fellow in Political Economy at Heritage. He has been a special assistant in the U.S. Department of Housing and Urban Renewal, a policy advisor to the U.S. Attorney General and a senior staff member in the White House Office of Policy Development. He received his bachelor’s and law degrees from Harvard and has authored numerous studies and scholarly articles.John C. Goodman
is President of the National Center for Policy Analysis. Dr. Goodman earned his Ph.D. in economics at Columbia University and has engaged in teaching and research at six colleges and universities, including Columbia University, Stanford University, Dartmouth College, Sarah Lawrence College and Southern Methodist University. Dr. Goodman has written widely on health care, Social Security, privatization, the welfare state and other public policy issues. He is the author of seven books and numerous scholarly articles. Dr. Goodman’s published works include National Health Care in Great Britain, Regulation of Medical Care: Is the Price Too High?, Economics of Public Policy, Social Security in the United Kingdom and, with Gerald L. Musgrave, Patient Power: Solving America’s Health Care Crisis.Merrill Matthews Jr.
is the Director of the Center for Health Policy Studies at the National Center for Policy Analysis. He has a Ph.D. in philosophy and humanities. Dr. Matthews has an extensive background in medical ethics, and he lectures and consults on medical ethical issues. He serves on the University of Texas Southwestern Medical School’s Institutional Review Board for Human Experimentation and is the ethicist for the medical ethics committee at Richardson Medical Center. Articles and reviews written by Dr. Matthews have been published in the Newsletter of the American Philosophical Association, Policy Review, Chronicles, Workplace Health, The World & I, Texas Dental Journal and several newspapers across the country. Dr. Matthews serves as the political analyst for the USA Radio Network and writes a syndicated editorial-page column dealing primarily with political, economic, religious and moral/ethical issues on a local and national level for a chain of suburban newspapers.The National Center for Policy Analysis is a nonprofit, nonpartisan research institute, funded exclusively by private contributions. The NCPA developed the concept of Medical Savings Accounts, the health care reform that has wide bipartisan support in Congress and in a growing number of states. Many credit NCPA studies of the Medicare surtax as the main factor leading to the 1989 repeal of the Medicare Catastrophic Coverage Act.
NCPA forecasts show that repeal of the Social Security earnings test would cause no loss of federal revenue, that a capital gains tax cut would increase federal revenue and that the federal government gets virtually all the money back from the current child care tax credit. Its forecasts are an alternative to the forecasts of the Congressional Budget Office and the Joint Committee on Taxation and are frequently used by Republicans and Democrats in Congress. The NCPA also has produced a first-of-its-kind, pro-free enterprise health care task force report, written by 40 representatives of think tanks and research institutes, and a first-of-its-kind, pro-free enterprise environmental task force report, written by 76 representatives of think tanks and research institutes.
The NCPA is the source of numerous discoveries that have been reported in the national news. According to NCPA reports:
- Blacks and other minorities are severely disadvantaged under Social Security, Medicare and other age-based entitlement programs;
- Special taxes on the elderly have destroyed the value of tax-deferred savings (IRAs, employee pensions, etc.) for a large portion of young workers; and
- Man-made food additives, pesticides and airborne pollutants are much less of a health risk than carcinogens that exist naturally in our environment.
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