Values and Reform

[Andre Dermant <adseale@aol.com>]

No sensible reformer of the Social Security system advocates
replacing the "safety net" with individual stock investments as
many left-leaning lobbies, think-tanks, and political organizations
suggest they do. The best solution is sensitive to the needs of
the various groups in the population. The following comments
clarifies the discussion:

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By carefully and responsibly investing the funds in stocks and
bonds through mutual funds using concepts similar to those used
for pension plans such as 401(k) and IRA, we may generate significantly
higher returns and thereby solving the most pressing problems.

Countries such as England, Australia, Chile, and others have already
implemented such system. Our private, federal and state pension
plans in the US are also a good model. Surprisingly two counties
in Texas thanks to a legislative quirk already have privatized
Social Security.

Here are the conclusions which may be drawn from the British
experience:

1) Don't underestimate the appeal of freedom of choice or the
popularity of personal pension investments;

2) Combining a flat pay-as-you-go defined benefits program with a
fully funded set of private options can work more effectively for
workers and retirees than a one-tier system;

3) In any structural reform of Social security, make sure to protect
current beneficiaries, proceed carefully, and frame policies for
a more prosperous future;

4) Don't let the problem of transition costs delay change; be candid
about the costs and spell them out;

5) Explain to taxpayers that there are great public as well as
private benefits in moving toward a system based on private savings
accounts;

6) Clarify the amount of basic pension in a two-tiered system and
give careful consideration to the desirable degree of redistribution;

7) Realize that covering low-income or part-time workers with a
defined contribution system of personal pensions may not be easy;

8) Realize that Social Security represents only one aspect of the
current income transfer from young working persons to older retired
persons;

9) Understand that establishing a tier of mandatory savings in a
national pension system can improve the overall savings rate of
the economy;

10) Make sure that workers and retirees are protected against fraud,
abuse, and the mismanagement of private pension funds;

11) Incorporate ways to give young workers the opportunity to set
up personalized pension accounts that can rebuild their confidence
in Social Security;

12) Recognize that personal pension options can give workers
flexibility in deciding on the age of retirement.