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Tilted Cat Head
Administrator
Location: Manhattan, NY
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Quote:
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Originally Posted by willravel
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taking just one point there
Quote:
REASON #4: Privatization has been a disappointment elsewhere.
Advocates of privatization often cite other countries such as Chile and the United Kingdom, where the governments pushed workers into personal investment accounts to reduce the long-term obligations of their Social Security systems, as models for the United States to emulate. But the sobering experiences in those countries actually provide strong arguments against privatization.
A report this year from the World Bank, once an enthusiastic privatization proponent, expressed disappointment that in Chile, and in most other Latin American countries that followed in its footsteps, "more than half of all workers [are excluded] from even a semblance of a safety net during their old age."
Other cautionary points made in the World Bank report and other studies about the experience in Chile:
Investment accounts of retirees are much smaller than originally predicted-so low that 41 percent of those eligible to collect pensions continue to work.
Voracious commissions and other administrative costs have swallowed up large shares of those accounts. The brokerage firm CB Capitales calculated (see english language discussion by Stephen Kay here) that when commission charges are taken into consideration in Chile, the total average return on worker contributions between 1982 and 1999 was 5.1 percent-not 11 percent as calculated by the superintendent of pension funds. That report found that the average worker would have done better simply by placing their pension fund contributions in a passbook savings account.
The transition costs of shifting to a privatized system in Chile averaged 6.1 percent of GDP in the 1980s, 4.8 percent in the 1990s, and are expected to average 4.3 percent from 1999 to 2037. Those costs are far higher than originally projected, in part because the government is obligated to provide subsidies for workers failing to accumulate enough money in their accounts to earn a minimum pension.
In the United Kingdom, which began encouraging workers to divert payroll taxes to personal investment accounts in 1978, many citizens were victimized by poor investment choices as well as unscrupulous brokers. The national government was left with substantial new administrative expenses, lost tax revenues, and responsibilities to bail out some failed private pension plans. Indeed, the problems were so wide-ranging that even the most enthusiastic supporters of private accounts now say that the United Kingdom simply did not do it right.
A British government commission headed by Adair Turner reported in October 2004 that Britain had been living in "a fool's paradise" by thinking it had solved its pension problems. According to pension experts at the Organization for Economic Cooperation and Development (OECD), the Adair Turner report has sounded alarm bells. "What looked like a very good idea from a financial perspective in cutting costs has put pensioner poverty, which had been all but eradicated, back on the agenda."
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By this very point then isn't ROTH IRA, IRA, 401(k), and 403(b) in jeopardy? It's private, it's managed by the owners who make bad decisions. Yet, I know people who's retirment programs listed above which are doing much better than any contribution they have listed in their SSI account.
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