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Social Security Reform Thursday: Week Twenty.

Thursdays are good days for reform, because they fall between Wednesdays and Fridays.

That's why WILLisms.com offers a chart or graph, every Thursday, pertinent to Social Security reform. The graphics are mostly self-explanatory, but we include commentary on some of them where and when necessary.

This week's topic:

Personal Accounts Around The Globe.

"From the Conservative party in Great Britain, to communists in China to a fascist dictatorship in Chile to social democrats in Sweden, the impetus of reform has been the same. Ideology doesn’t matter when you can’t pay your bills."

So sayeth National Center for Policy Analysis (NCPA) President John C. Goodman.

Indeed, the Bismarckian pay-as-you-go funding structures of pensions found around the world are collapsing for the same basic reason: people, in every corner of the world, stopped making enough babies to support the pyramid scheme necessary to keep pay-as-you-go afloat.

So, facing looming crises, what did governments of various stripes, all around the world, do? Did they say There Is No Crisis? Did they simply say No Dice? Did they hope to pass the problem on to future generations?

NO!

Governments all around the world saw the writing on the wall, got their rear ends in gear, and reformed their Social Security systems for the long-term.

A June 2005 policy study by NCPA, Reforming Social Security: Lessons from Thirty Countries (via Social Security Choice blog) examines pension reforms from a diverse lot of nations, noting that the "way we design the personal account system will determine reform’s winners and losers, the economic status of the elderly as a group as well as the cost to the coming generations, and its impact on the broader economy."

Success of the reforms range from adequate to wildly successful, and we can draw lessons about how to keep administrative costs low, how to minimize investment risk, how to structure benefit payouts (preventing retirees from blowing a hole in their money in one fell swoop), and, most importantly, how to ensure that the elderly are kept out of poverty.

Let's take a gander at the pension reforms around the world. In some countries, the personal account comprises the bulk (or all) of the pension, in others it is only a portion of an overall pension strategy:

Latin America-

With younger populations and relatively small pension obligations (and because of early action), Latin American countries generally opted for larger personal accounts, decisions which have paid off remarkably well over the years.

The countries of the former Soviet Union-

With a couple of notable exceptions, personal accounts in these countries comprise a relatively small portion of their pension systems. Here's why:

Countries of Eastern and Central Europe typically have large implicit pension debts due to aging populations and generous benefits owed to workers and retirees in the traditional systems. These countries were more likely to start relatively small private plans, because they could not afford the high transition costs they would face with a larger shift of contributions. Nor could they afford an add-on in view of their already high payroll tax rates, which often exceeded 25 percent.

Modern economies-

An interesting fact, underscoring the power of personal accounts:

...in Sweden, which has the smallest private pillar in relative terms, about 14 percent of total contributions go into the accounts; but 30 percent of total benefits are projected to come from the accounts.

Lessons for U.S. reform efforts:

Compared with other industrialized countries, the United States currently has a trust fund surplus and a relatively small pension debt stemming from our younger population — which makes it easier to divert some of the current payroll tax into personal accounts.

If Democrats continue to obstruct real reform over the next several years, however, our options for an optimal remodeling of Social Security diminish rapidly, policy-wise, as well as politically.

Additional reading: "Social Security: Bad for the Democrats."

Previous Reform Thursday graphics can be seen here:

-Week One (Costs Exceed Revenues).
-Week Two (Social Security Can't Pay Promised Benefits).
-Week Three (Americans Getting Older).
-Week Three, bonus (The Templeton Curve).
-Week Four (Fewer Workers, More Retirees).
-Week Five (History of Payroll Tax Base Increases).
-Week Six (Seniors Living Longer).
-Week Six, bonus (Less Workers, More Beneficiaries).
-Week Seven (History of Payroll Tax Increases).
-Week Seven, bonus (Personal Accounts Do Achieve Solvency).
-Week Eight (Forty Year Trend Of Increasing Mandatory Spending).
-Week Nine (Diminishing Benefits Sans Reform).
-Week Ten (Elderly Dependence On Social Security).
-Week Eleven (Entitlement Spending Eating The Budget).
-Week Twelve (Benefit Comparison, Bush's Plan versus No Plan).
-Week Thirteen (Younger Americans and Lifecycle Funds).
-Week Fourteen (The Thrift Savings Plan).
-Week Fifteen (Understanding Progressive Indexing).
-Week Sixteen (The Graying of America).
-Week Seventeen (Debunking Myths).
-Week Eighteen (Debunking Myths).
-Week Nineteen (Reform Needed Sooner Rather Than Later).

Tune into WILLisms.com each Thursday for more important graphical data supporting Social Security reform. We'll address more myths in future installments.

Posted by Will Franklin · 16 June 2005 01:13 PM

Comments

Posted by: Cindy T. at June 16, 2005 04:39 PM

Posted by: Zsa Zsa at June 16, 2005 05:05 PM

Posted by: Doyle at June 16, 2005 06:14 PM

Posted by: Cindy T. at June 17, 2005 10:54 AM

Posted by: Zsa Zsa at June 17, 2005 11:14 AM