NCPA - National Center for Policy Analysis

Other Countries Make Social Security Work

May 19, 1997

The American Social Security System would be well served to model similar systems in Chile, Australia, Great Britain, and dozens of other countries that are turning toward privatization to build secure futures for their citizens, economists observe.

  • Chile became the first country in the Western hemisphere to establish a government run pension system.
  • Strapped with skyrocketing liabilities and no way to pay for future public pension benefits, Chile established mandatory private savings in 1981.
  • Chile's system now runs a budget surplus, with average annual growth rates of 7 percent, and is producing retirement incomes averaging 70 percent of pre-retirement incomes, latest figures show.

Australia began a mandatory system of private pensions in 1992.

  • When fully implemented, workers are to contribute 12 percent of income (less than in the U.S.) to their retirement fund.
  • The funds are projected by economists to provide retirees 79 percent to 106 percent of their pre-retirement income -- for many more income than when they worked.
  • Figures show that after five years, the average Australian has U.S. $30,000 in his or her pension account.
  • In addition, Australia (like Chile) provides a minimum "safety-net" pension for the working poor.

Great Britain in the mid-1980s established a retirement option where workers may choose between additional government benefits or a private savings plan. Today, more than 70 percent of eligible British workers opt for private pensions in exchange for a tax cut of 4.8 percentage points.

In contrast, latest data shows the average American family pays $7,000 per year in Social Security taxes for a modest return, estimated at a mere 2.2 percent for those born in 1950.

Source: Daniel Mitchell (Heritage Foundation), "Where Social Security Works," Washington Times, May 19, 1997.


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