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| British Tried A Similar SS Privatization Plan; 25 year experiment considered failure | |
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| Tweet Topic Started: Feb 19 2005, 12:48 AM (167 Views) | |
| Fr. Mike | Feb 19 2005, 12:48 AM Post #1 |
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I found this article regarding a similar experiment with a plan to partly privatize Social security. since I'm not British, I cannot vouch for the accuracy of the article's info, but it does bring into question some issues not being brought out to public debate by Bush or other leaders. Whatever decision is made regarding tinkering with the current plan, all pluses and minuses should be conveyed to the citizens who will have to explain this plan to their children and grandchildren down the road. The decisions our generation makes won't be affecting us as much as the younger generation. Fr. Mike Privatization Bombed in Britain Now they’re looking for a way out By Norma Cohen February 2005 The president’s bold new plan to partly privatize Social Security, which has many on Wall Street salivating, is not new at all. In fact, it looks remarkably similar to Britain’s 25-year experiment with pension reform, which included substituting private investment accounts for a portion of government pension benefits. It is an experiment now regarded as a dismal failure. In short, the British public—and government—lost money. They learned the hard way that the costs of administering private accounts can affect returns and reduce the size of a retirement pot by up to 30 percent. Unusual for Britain, there is now an emerging consensus among labor and business, liberals and conservatives, that the government pension system—the United Kingdom’s counterpart to Social Security—needs serious reform. Recommendations for an overhaul are expected after the elections in May. One reason for the intense attention is that the U.K.’s traditionally generous system of employer-sponsored pensions is collapsing, exposing the weakness of the government pension system just as more retirees are being forced to rely on it. So while the United States is looking at privatization, British experts are eyeing the more generous and simpler U.S. Social Security system. David Willetts, a Conservative member of Parliament whose intellectual acumen has earned him the nickname "Two Brains," is one admirer of the American system. "I like the way they distinguish between Social Security and means-tested welfare," he says. "They have higher Social Security benefits to keep elderly people off welfare." The Confederation of British Industry (CBI), the functional equivalent of the U.S. Chamber of Commerce, last year made a surprising call for a higher state retirement benefit to be paid for by raising taxes and the retirement age, from 65 to 70. The maximum payout for a single person at age 65 is around 4,200 pounds per year, or about $8,000, although British retirees do not pay for health care or prescription drugs. (In the United States the average annual Social Security benefit is $11,000.) "Not many people would think that Britain, with its emphasis on social programs, would be less generous than the United States," says Anthony Thompson, head of pensions policy at CBI. "We were surprised ourselves." CBI’s U-turn on pension policy stems partly from self-interest. Government spending on state pensions has been low, and workplace pensions have traditionally been generous. Now employers are straining under the burden and want the government to play a greater role. The National Association of Pension Funds, an employers’ group, agrees. It’s "actually cheaper for the state to carry the risk," says Chief Executive Christine Farnish, adding that in looking for a system that offers the best combination of modest guaranteed retirement benefits and low cost, the U.S. Social Security program seems the best model. "It doesn’t have to make a profit, and it delivers efficiencies of scale that most companies would die for," she says. The story of how Britain’s retirement system reached its current crisis began 25 years ago, when Margaret Thatcher’s Conservatives swept to power on a tide of national disgust at high unemployment, high taxes and poor services. Though her pension reforms were ideological, they were also pragmatic: tax cuts could not be delivered without some cuts in benefits. So the first reform, passed in 1979, was to link increases in state pension benefits to prices instead of wages, something the Bush administration is considering. Ros Altmann, a Harvard-trained specialist in pension economics who is on the board of the London School of Economics, says that at the time neither the voting public nor most politicians understood the true implications of altering that link. But advocates for the change knew what they were doing: they were slowing the rate of growth in pension increases, because wages have historically risen by 1.5 to 2 percentage points ahead of inflation each year. "Two percent doesn’t sound like much," Altmann says. "But with the effects of compound interest, that amounts to nearly a 50 percent reduction in the value of benefits over 30 to 40 years." Thatcher’s second reform was based on ideology. The Thatcherites wanted a home-owning, share-owning nation, something similarly expressed by the Bush administration. The idea was to replace the so-called "nanny state," in which government looked out for people, with a state in which everyone would have to look out for themselves. In 1986 the Thatcher government offered to let people divert part of their social security taxes into a personal investment account similar to a 401(k). For help in designing the plan, the government turned to the insurance industry, the main source of long-term investment products in Britain. By assigning this role to the industry that would benefit most, the government had in effect asked the fox to design the chicken coop. The competition to sell pension investment products to the public was intense. Products were numerous and complicated, and few people could understand them. Fees and costs often were not fully disclosed by agents, who could pocket a portion of the first few years’ sales. Rules were poorly designed and rarely enforced. At the start, the public response was wildly positive, and the program was hailed as one of the triumphs of the Tory government. By 1991 more than 4 million Britons had signed up, attracted by the promise of generous tax incentives. It soon became apparent that all was not well. More money was being lost by taxes being diverted to private accounts than the government would have paid out in entitlements. Gone was a 1.58 billion-pound surplus in the National Insurance Fund. Worst of all, many workers who switched from good company pension plans to private investments ended up with a poorer retirement. Since the private investments required upfront charges and commissions, plus annual administration fees, there was often little on which investment returns could accumulate. People began to realize that they could no longer be certain that investment returns would equal what they had given up by switching to private accounts. Later, after the stock market crash in 2001, even the insurance industry began advising customers to return to the government system. In 2004 alone, 500,000 people abandoned private pensions and moved back into the traditional government plan. Another 250,000 are expected to move back this year. In dealing with its problems, the U.K. Pensions Commission has concluded that there are only four possible solutions: cut state retirement benefits, increase taxes, increase personal savings or delay retirement. Noting that there is no political support for the first choice, the commission determined that each of the three other choices, on its own, would be too painful and that only some combination could work. According to U.K. Pension Commission Chairman Adair Turner, a vice president of Merrill Lynch in London and the former director general of the U.K.’s biggest business lobbying group: "There are no other choices." Norma Cohen covers pension issues for the Financial Times in London. |
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A humble servant of the Lord Jesus Christ Don't forget to say your prayers! The unborn have rights too. | |
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| jrf | Feb 19 2005, 01:20 AM Post #2 |
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I praise you for the way you found something you consider relevant to the discussions and our current situation and the way you presented it. Thank you. |
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| DanHouck | Feb 19 2005, 06:56 AM Post #3 |
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Land of Enchantment NM
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This is our problem exactly. Very interesting read Spacebeing! Dan |
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| BuddyIAm | Feb 19 2005, 09:40 AM Post #4 |
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Thank you , Father That information has been available to ALL of the Bush administration. ALL OF THE MEDIA.. FOR A VERY LONG TIME AND IS PURPOSELY BEING WITHHELD FROM THE GENERAL PUBLIC. Bush is using a bully pulpit. To force feed corporate welfare on America.. |
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"The truth lies in a man's dreams... perhaps in this unhappy world of ours whose madness is better than a foolish sanity." "Facts are stupid things." - Ronald Regan "Ideas are more dangerous than guns. We don't let our people have guns. Why should we let them have ideas?" --Josef Stalin | |
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8:21 AM Jul 11