NCPA - National Center for Policy Analysis

Comparing Privatized Social Security To U.S. System

March 17, 1999

In the 1980s, Chile and Great Britain privatized their pension systems. Over the years, those plans have so outperformed historic returns generated by the U.S. Social Security system as to leave us in the dust.

  • A single U.S. male with average earnings, born in 1937, has realized only a 1.6 percent annual rate of return on funds he was forced to turn over to Social Security.
  • Between 1981 -- when private pension plans were implemented in Chile -- and 1998, Chilean workers have realized an 11 percent rate of return, inflation adjusted, on their private accounts.
  • The average retiree from Chile's private system gets a pension that is roughly 80 percent of his mean annual income over the final decade of his working life.
  • From 1986 to 1995, workers in the United Kingdom achieved an annual average growth of 8.7 percent in their private pension plans.

The Chilean and the British system differ in some respects.

Chile tightly regulates private pension-fund firms and requires them to invest conservatively.

Experts say that Britain, on the other hand, allows funds to perform virtually unregulated. Workers there have a variety of investment options -- depending on how much risk they are willing to accept. Britain also has a two-tier system -- allowing workers to decide whether they want a guaranteed flat-rate benefit from a national fund, or to put a portion of their wages in pension plans run by their employers or in private retirement accounts.

Source: Aaron Steelman, "Taking Social Security Private," Investor's Business Daily, March 17, 1999.


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