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For all the fanfare that surrounds the Bush administration’s efforts to present a bold new idea on pension reform, the truth is that it is not new at all. In fact, the proposal first term in 1979 and which has since led Britain to the brink of a crisis. Since then, the nation’s basic pension, which is paid for out of tax receipts, has shrunk dramatically. The United Kingdom has the stingiest state pension program of any G8 nation, and there is growing consensus -- even among British conservatives -- that reform is needed. And ironically enough, considering that America is on the verge of copying Britain’s mistake, most experts seek reform in the direction of a more generous, and simpler, basic state pension -- one similar in design, in other words, to America’s Social Security program. ...
Britain’s experiment with substituting private savings accounts for a portion of state bene?ts has been a failure. A shorthand explanation for what has gone wrong is that the costs and risks of running private investment accounts outweigh the value of the returns they are likely to earn. On average, fees and charges can reduce pension lump sums by up to 30 percent on retirement. The nation’s savings industry, which sells those private accounts, has already acknowledged this. Which brings us to irony No. 2: Just as the United States prepares to funnel untold billions to its private sector for the management of private accounts, back in 2002, many U.K. insurance companies, mindful of tough new rules against giving bad advice, began to write to their customers urging them to consider abandoning their private savings and returning to the state pension system -- something hundreds of thousands of Britons have done already.
Nor do they point to Argentina's recent attempt, which probably was the two ton brick on the camel's back which destroyed their economy. They do tend to praise Chile for some reason, even though that was also a disaster financially, simply because it briefly appeared to be better than the state-run system which had been looted by a corrupt government.
Oddly, they frequently praise Sweden's system, even though so far it too has not gone very well, though they usually fail to point out that the total payroll tax there is 18.5%, over 6 percentage points higher than the equivalent tax here.
Anyway, I've said it before and I'll say it again. Over the longer run I actually don't worry about old people getting their money (barring a judicial revolution which stamps out the entire New Deal). The same demographic changes which are causing people to scream "crisis" will also lead to a demographic of voters who will vote to extract massive of amounts of money from younger voters for old age pensions, luxury retirement homes, etc. The question really is whether we allow massive amounts of money to be looted in the coming years, leading eventually to massive tax hikes to replace what was looted and to provide old voters with the pensions and services they'll demand.