In Britain and Chile, lessons for revamping Social Security (success with private accounts)

CSM ^ | March 14, 2005 | Mark Rice-Oxley and Jennifer Ross

[FairOpinion]

in Chile, things were even more dire. The military government, facing what was by all accounts an unsustainable retirement program and a possible default on its obligation to retirees, replaced the state-run pay-as-you-go system with a three-pillared, largely private one. Twenty-five years later, Chile is looked to as a model of how to retool Social Security.

At least 20 countries have added some kind of private component to their traditional pension systems, with seven more in the process of implementing them.

Chile has what economists call a fully funded system, containing enough money to cover all retirees if they simultaneously decided to cash out.

The first pillar is the state's responsibility, which covers workers who retired before 1980 and guarantees minimum pensions for poor workers.

The second and main pillar is the obligatory monthly payroll deduction of 12.3 percent. Ten percent goes into the worker's own account, administered by one of six private pension funds, while 2.3 percent covers administrative fees.

The third pillar is a voluntary, tax-deductible savings plan administered by banks. "We have to be proud of Chile's system," says Guillermo Arthur, who runs Chile's pension program. He says that pensions have grown an average of 10.4 percent since 1981, far exceeding the 4 percent that he says they need to be profitable.

Today, Chile has more than $60 billion in pension investments, equivalent to more than a third of the country's gross domestic product. Mr. Arthur says that these funds have been crucial to economic growth in the 1980s because pensions were invested in Chilean companies.

[FairOpinion]

What the Dems don't want you to know...

This IS the way to ensure people's retirement and security in retirement.

[FairOpinion]

Suggest reading the entire article and bookmarking it and even saving it for ammunition to fight the naysayers.

Also check out the new US site:

http://www.strengthensocialsecurity.gov

[FairOpinion]

[FairOpinion]

"Workers used to have to contribute 34 percent of their salary to pensions and limited health coverage. Today it's only 12 percent for pensions and 7 percent for optional health coverage," he says. "And the returns on that investment are much higher under the new system." (in Chile)